The company purchase agreement is - although not always the conclusion of an M&A process - an important milestone.
The company purchase agreement is - although not always the conclusion of an M&A process - an important milestone. Since every business acquisition or sale is based on individual circumstancesthe corresponding contract must reflect these details.
Entrepreneurs conclude countless contracts over time. The regional chambers of industry and commerce often provide orientation through model contracts. However, these are also to be treated only as samples. Individual questions should always be clarified with a lawyer experienced in M&A or the advice of the chambers of industry and commerce.
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Sample company purchase agreement for M&A transactions
In the early stages of an M&A process, it is initially useful to have an orientation as to what the contract for a company acquisition can basically look like. A sample is a great help here and Provides information about scope, shape or content. While individual changes undoubtedly still need to be made, the following pattern is the first step towards a successful transaction.
The Chambers of Industry and Commerce are also very involved in the topic of business succession.
The Frankfurt am Main Chamber of Industry and Commerce (IHK-Frankfurt am Main) provides on its homepage a Very good, general purchase agreement template for downloading available.
Here you can download the template for the IHK company purchase agreement.
In the following, we explain what makes a Share Deal vs. Asset Deal constitutes.
Model contract Share Deal ? Sale of shares
In the case of a share deal, only the ownership of the shares changes.; all contracts concluded by the company itself with third parties remain in principle unchanged. The following aspects, among others, are then important:
- Are all contractual provisions, including contract amendments and supplements, documented and retrievable?
- Do all contracts comply with the current state of legislation and case law?
- Are the purchasing, customer or other contracts standardised?
- For example, do contracts contain termination rights for the contracting party in the event of a change of ownership, so-called "change of control" clauses?
A comprehensive template that can be used as a model contract for a share deal is provided by the Juraforum.
Asset Deal Contract Template ? Sale of assets
If the buyer acquires defined assets such as machines, stocks etc. by way of singular succession (asset deal), The contracts concluded by the Company shall be filed with the Company sale not automatically via. In such cases, the transfer of the contract must be specifically regulated; in most cases, the consent of the contracting partner is also required for this.
In the run-up to a Company sale it can be helpful to include this consent to a contract transfer in the contract by default or to obtain it individually in advance in order to gain time in the sales process. Particular attention must be paid to the transfer of data masters in the asset deal. The GDPR draws relatively narrow boundaries for this.
What should be considered in principle?
The contract for the acquisition of a company is often drawn up on the basis of the ?Letter of Intent? drafted. In the following negotiations, the different views result in Compromises that end in fixed clauses.
It is important that the points to be discussed are not seen as annoying niceties. Every point in the contract that is signed later enters into a commitment that cannot simply be avoided. Therefore, the process of drafting the company purchase agreement should be seen as an opportunity toto clearly record all relevant details for the future.
The situation is similar with the Due Diligencewhich also is not a burden, but an important test for success of the entire process.
Who prepares the first draft
The first draft can be initiated by both the seller and the buyer, whereby it is is usually the seller who has the first drafts made. At the very least, the decisive contract corner data should be established by the seller. This is of great importance for the basic structure of a company purchase agreement.
Moreover, it is legitimate that the side responsible for the first draft will also formulate its own view more clearly. Since it is almost there will inevitably be negotiations in which the seller will have to concede compromisesIn the end, the result is a contract that is acceptable to both sides in the purchase of the company.
Why you should not use a notary for the first draft
Depending on M&A process a notary becomes necessary for the certification of the final signatures. However, there is no obligation for a notarial certification for a first draft. This is also to be avoided for cost reasonsas a notary will already charge a (not inconsiderable) fee for the first draft. The fee is independent of the success of the process.
An experienced M&A advisor and/or lawyer is also often able to prepare a first draft of purchase agreements. A seller can negotiate with the lawyer he trusts about fees based on time and effort, fixed price or success-based. Lawyers who specialise in company sales are not always immediately recognisable. Ideally, the M&A advisor can provide contacts and make recommendations.
Alternatively, it often becomes clear in a personal conversation how much experience the lawyer has in this area.
- Is he aware of the special requirements of your M&A process?
- Does he already have prepared purchase contracts at hand that he can use as a model?
- Does he know the requirements for a legally secure contract?
And there should not only have been M&A legal advice once a year, but the Expertise of many transactions is also of high value in legal advice for the client.
Let your trusted M&A advisor recommend a competent lawyer for the first draft of your company purchase agreement. This will save you costs, secure the best know-how and lay the foundation for further negotiations.
The 10 most important contents for the company purchase agreement [checklist].
In addition to individual elements that differ within industries and individual companies, there are basic contents that must be considered in every company purchase agreement.
Here is a checklist:
Further contents in the purchase contract
In addition to the above 10 contents of our checklist, it is imperative that further questions be answered in the company purchase agreement.
- Are the VThe object of income and the purchase price as well as the purchase price mechanism exactly defined?
- Which facilities are cited?
- Are there relevant claims?
- Are there relevant liabilities?
- Which Rights and obligation apply to the contracting parties?
- Do levies have to be paid?
- What participation is regulated by contract?
- How exactly is the implementation to be carried out?
Who bears the costs? Buyer or seller?
While in Germany it is possible in principle to regulate almost everything by contract, it has become established that the Buyer the costs for the possible notarial certification of the company purchase agreement. And the buyer bears his costs for his legal advice.
The thought process here is simple: In the end, the buyer pays the costs anyway.
Because: If it is agreed that the seller has to bear the costs, the seller will in all probability include the costs in the total price.
Attention: Special tax and legal features!
Every M&A process is subject to the applicable tax and legal regulations. However, this should not necessarily be seen as a burden, but can be often also offer opportunities for transfer.
Example: The sale of individual assets of a GmbH within the scope of an asset deal is subject to trade tax and corporate income tax. If the GmbH instead sells a subsidiary GmbH in the context of a share deal, the capital gains are tax-free (5 % of the capital gain is treated as a non-deductible operating expense).
Within the framework of the M&A consulting and/or support from an expert lawyer, such possibilities can be discussed. It is crucial that the the right contents are recorded in the company purchase agreement and a good tax construct should be thought through and prepared at an early stage on the seller's side.
In addition to tax pitfalls, a common mistake also lurks in the calculation of the company's value.
Avoid this mistake with our webinar:
Important tips for contract negotiations
The first draft of the company purchase agreement must necessarily be considered as such. It shall unavoidably contain passages that the opposing party does not agree with. As a preventive measure for successful negotiations, it is advisable to put yourself in the other party's shoes.
- Which points will be particularly important to her?
- Can one already be generous here?
- Which points are less important to the other party?
- Can these be formulated in one's own favour?
Another tactic is to deliberately frame certain content in such a way that discussion is unavoidable. In the negotiations, concessions are made on these contents to enable the opposing party to 'win'. In fact, however, the compromise that has been made is exactly the result that was sought from the outset.
Bonus: Further contracts in the sale of the company
If you have a Sell companyIn the case of a purchase agreement, the transaction is usually not only sealed by the company purchase agreement. Other contracts come into play and should be thoroughly planned or reviewed.
The most important contracts are: Employment and tenancy agreements.
But also about Contracts with suppliers or customers are part of a proper M&A process.