It is important to observe the duties of disclosure in the sale of a business: For example, a seller should provide information about the possible departure of an employee. Failure to do so may result in damages or reversal of the transaction.

Dr Silja Maul, a lawyer from Mannheim, describes at www.anwalt.de the consequences of the ruling of the Karlsruhe Higher Regional Court (29 August 2011, 8 O 241/10) on possible duties of disclosure of a selling entrepreneur. Failure to comply with the duties of disclosure in the sale of a business can have dramatic financial consequences for a seller.

According to the case law of the highest courts, the seller has a duty to disclose information during contract negotiations if the buyer could reasonably expect to be informed of facts that are obviously of decisive importance for the formation of the buyer’s will, which is affirmed, inter alia, in case of considerable economic disadvantages for the buyer (BGH NJW 2010, 3362).

Intra-company agreements are part of the duty of disclosure in the sale of a company

According to the judgement of the OLG Karlsruhe, these circumstances also include the promise made by the subsequent seller to an employee that he would become a co-partner. In the opinion of the OLG, this circumstance should have been disclosed during the sales negotiations in the case at hand, since there was a risk that the departure of the employee would lead to considerable losses in turnover, especially since the specific risk of the employee’s departure was not part of the general entrepreneurial risk, but was due to a situation created by the seller himself before the sale of the company.

Otherwise there is the threat of reversal or compensation for damages

This ruling is likely to have a significant impact on any business succession project: This is because the seller must disclose the circumstances that cause an important employee to leave after the sale of the business. If this does not happen or is forgotten, the acquirer may be able to challenge the sale of the company or assert claims for compensation in court.

Therefore, special attention must be paid to such agreements in contract negotiations: The loss of key employees can cause existential difficulties for smaller companies in particular. If this employee has been promised by the seller to participate as a co-partner, there may even be the possibility of a reversal of the sale of the company. This can be prevented if the seller follows his duties of disclosure very closely when selling the company.