Selling GmbH shares: As a co-share­hol­der in 3 steps

The sale of GmbH shares is associa­ted with innume­ra­ble requi­re­ments of the legis­la­tor and depends on many diffe­rent aspects. 

Alrea­dy at this point, it is helpful to note that this artic­le aims to outline a simple process and by no means a Exten­si­ve counsel­ling and support for the M&A process can or would like to replace.

This artic­le opens with a ficti­tious examp­le where the seller or share­hol­der wishes to sell a percen­ta­ge of his limit­ed liabi­li­ty compa­ny shares and it is not assumed that the sale will be 100%, which in fact is a classic Compa­ny sale and whose fiction­al descrip­ti­on would have a much higher scope in the description.

Table of contents

A typical examp­le of the sale of shares in a limit­ed liabi­li­ty compa­ny would be a poten­ti­al dispu­te or open disagree­ment between the respec­ti­ve share­hol­ders. In the most common cases, the sale of shares in a limit­ed liabi­li­ty compa­ny is made to the co-partners of the compa­ny or to a speci­fic third party, and this is what this artic­le aims to shed light on.

Illustration of a process graphic for selling GmbH shares

In the case of a GmbH sale of 100 % of the compa­ny shares, we recom­mend the artic­le Sell compa­ny.

Tip: If you want to sell your GmbH shares, you will certain­ly face some tax and legal questi­ons. This guide will help you to get a first orien­ta­ti­on. If you want to avoid risks in your speci­fic case and save costs and taxes, contact us, we will be happy to support you.
Request initi­al consul­ta­ti­on now or take a look at our Compa­ny sale consulting

1. sell GmbH shares: Valuation

In general, it should of course be noted that for the sale of the GmbH shares, if appli­ca­ble, the Consent of the Compa­ny and is subject to notari­al execu­ti­on. The sale shall be confirm­ed at the share­hol­ders’ meeting.

This artic­le does not go into detail about possi­ble valua­ti­on proce­du­res, which are prima­ri­ly carri­ed out by certi­fied and autho­ri­sed experts for tax, law or M&A, for examp­le. One of the most important and most widely used proce­du­res is the income capita­li­sa­ti­on approach accor­ding to IDWS1. Further infor­ma­ti­on on valua­ti­on proce­du­res can be found here: Calcu­la­te enter­pri­se value.

The afore­men­tio­ned capita­li­sed earnings method or the EBIT method (multi­ples factor) is often used to deter­mi­ne the current value of the compa­ny shares. In the case of larger compa­nies and groups of compa­nies, the Discoun­ted cash flow method. In the EBIT method (EBIT=Earnings Before Interest and Taxes), for examp­le, the valua­ti­on is based on the net earnings before interest and taxes and is multi­pli­ed by a factor. Since it is diffi­cult to compa­re the indivi­du­al charac­te­ristics of the business models of medium-sized compa­nies in parti­cu­lar, the multi­pli­er method should always be viewed with a certain degree of “fuzziness”.

To illus­tra­te this, here is an examp­le with ficti­tious amounts and an annual surplus of 100,000 euros:

Item 1.) + Net profit for the year: 100,000 euros

Item 2.) + Tax expen­se: 10,000 euros

Item 3.) - Tax refunds: 20,000 euros

Item 4.) + Interest expen­se (finan­cing) 7,000 euros

Item 5.) - Interest income 4,000 euros

Result: 93,000 euros

However, it is important to note that a perfor­med Valua­ti­on in no direct obliga­to­ry relati­onship to a possi­ble purcha­se price and these can there­fo­re be seen independent­ly of each other.


Sale of the GmbH shares at nominal value

If, for examp­le, a share­hol­der decides to sell his shares to the inten­ded buyer at nominal value - i.e. someti­mes far below the actual value - there are no legal restric­tions on this. However, if the price for the shares is conspi­cuous­ly low, a tax autho­ri­ty could also assume a hidden gift and would questi­on this if neces­sa­ry. If a trustee is appoin­ted for the trans­fer, the resale will also take place at nominal value.

Atten­ti­on should be paid to the Diffe­rence to compa­ny shares or the sale of compa­ny shareswhich is repre­sen­ted here only with a simple explana­ti­on. The compa­ny share is, among other things, the part that a share­hol­der has made as a contri­bu­ti­on to the compa­ny as a whole and refers to the compa­ny assets, i.e. a share of the contri­bu­ti­on. Compa­ny shares refer to shares in the compa­ny, for examp­le, the “compa­ny” has five share­hol­ders and each share­hol­der has the same share or the valua­ti­on is made, for examp­le, accor­ding to the contri­bu­ted parts of the origi­nal share capital.

May GmbH shares be sold below value?

In princi­ple and from a general legal point of view, nothing stands in the way of selling the GmbH shares for less than their value. However, any speci­fi­ca­ti­ons and aspects in the artic­les of associa­ti­on that have stipu­la­ted certain requi­re­ments must be taken into account. These can be, for examp­le, speci­fi­ca­ti­ons for the right of first refusal to existing share­hol­ders of the compa­ny and possi­ble payment modali­ties, such as the course of payments and other speci­fic points in the case of a sale.

2. negotia­ti­ons & purcha­se agree­ment for GmbH shares

The imple­men­ta­ti­on of the sale of shares is associa­ted with count­less legal and tax aspects. There­fo­re, the use of advisors or a lawyer is recom­men­ded in one’s own interest. During the negotia­ti­on, of course, the Skill of the seller who will prima­ri­ly rely on a valua­ti­on accor­ding to the methods mentio­ned above in the artic­le and will certain­ly also make decis­i­ons based on market condi­ti­ons and his own experience.

Of course, the time circum­s­tances for the sale play an essen­ti­al role here and the associa­ted time frame for a fast or slow proces­sing of the desired sale. For the prepa­ra­ti­on of the purcha­se agree­ment, count­less standard templa­tes are circu­la­ting, some of which are subject to a fee, but these should rather be regard­ed as infor­ma­ti­on or a guiding recom­men­da­ti­on. For the final purcha­se agree­ment, it is highly recom­men­ded to engage an experi­en­ced M&A lawyer or notary.

Compa­ny audit: due diligence

The due diligence phase is a detail­ed form of evalua­ti­on of a substance, which takes place, for examp­le, before the acqui­si­ti­on of a compa­ny or shares. This Risk assess­ment is prima­ri­ly left to experts from the indus­try, a law firm, a tax consul­tant or an auditor.

The aim of this assess­ment is to ensure that the infor­ma­ti­on given is correct, for examp­le when acqui­ring shares in a limit­ed liabi­li­ty compa­ny, and to identi­fy possi­ble risks. The Due Diligence is also the assess­ment of due diligence. In this process, the compa­ny or a person is analy­sed and evalua­ted in detail with regard to econo­mic, legal and finan­cial circum­s­tances. For this purpo­se, an assess­ment or recom­men­da­ti­on of the possi­ble purcha­se price is general­ly also made by the commis­sio­ned expert after the analysis.

For more infor­ma­ti­on on this important point on the way to the Compa­ny purcha­se agree­ment we recom­mend our artic­le on the Due Diligence Check­list.

3. conclu­si­on & trans­fer of the compa­ny shares and payment

There is nothing to prevent the sale of the shares in princi­ple. The sale will take place in accordance with legal requi­re­ments as a so-called Assign­ment of the shares of a GmbH by means of a purcha­se agree­ment or other legal transac­tions under the law of obliga­ti­ons. However, the settle­ment should be carri­ed out via a liable third party such as a lawyer or tax advisor in order to be on the safe side when comply­ing with all legal steps.

An obsta­cle to the proper sale of shares could be, in parti­cu­lar, a listed point in the respec­ti­ve artic­les of associa­ti­on that must be compli­ed with. This could be, for examp­le, the requi­re­ment to give prefe­rence to a third party in the right of sale.

The most common variant for payment and the use of exter­nal experts is the deposit into an escrow account and the subse­quent trans­fer of the values to the seller.

Can GmbH shares be sold without a notary?

The sale of the GmbH shares consti­tu­tes a contract under the law of obliga­ti­ons and there­fo­re the commis­sio­ning of a notary is unavo­ida­ble, as a so-called assign­ment obliga­ti­on is entered into. Thus, a conforming conclu­si­on can only take place in the form of a notari­al act.

The follo­wing list of the proce­du­re repres­ents a basic imple­men­ta­ti­on and can of course vary in reality

Sale process Share sale:

1. confi­den­tia­li­ty agree­ment ? Non Disclo­sure Agreement

2. letter of intent ? Letter of Intent

3. due diligence

4. contract for the purcha­se of GmbH shares

5. notary appoint­ment and purcha­se price payment

6. trans­fer of the GmbH shares ? Closing

7. regis­tra­ti­on in the commer­cial register

Payment modali­ties (what should be conside­red?): The trans­fer of the GmbH shares shall only take place after full payment of the agreed purcha­se price.

One-off payment: General­ly, the full purcha­se price is due at the notary appoint­ment and, in the most common cases, has alrea­dy been deposi­ted in an escrow account of the notary at an early stage. 

Payment by instal­ments: Parti­al payments or perfor­mance-based payments can also be made (depen­ding on the agree­ment), which are contrac­tual­ly fixed and based on concre­te parame­ters such as turno­ver or earnings in the future. Various tax regula­ti­ons must be obser­ved, such as how the payments can be declared.

What costs can be expected?

In the most common cases, an expert hour of between 200 and 400 euros should be calcu­la­ted for the prepa­ra­ti­on and support of a due diligence. This is only a guide­line and can also be agreed as a flat rate. Depen­ding on the scope of the due diligence, an avera­ge durati­on of at least fourteen days up to several weeks is to be expec­ted, resul­ting in a cost amount of at least five figures. In additi­on, there may be further invest­ments for consul­ta­ti­on and fees.

In the case of an acqui­si­ti­on of shares within known share­hol­der struc­tures, these expen­ses can also be divided among each other if necessary.

When acqui­ring the GmbH shares by means of a bank finan­cing, one can thus expect here approx. 3 to 8 percent as inciden­tal costs for the purcha­se transac­tion In the case of notari­al proces­sing, fixed fees of the legis­la­tor and the payment of the imple­men­ta­ti­on and adviso­ry activi­ties of the notary are added.

Selling GmbH shares: Taxes

The proceeds from the sale of GmbH shares fall under income from capital assets and are there­fo­re taxable. However, this must be clari­fied indivi­du­al­ly with a tax advisor.

With regard to the tax allowan­ces, the amount of the parti­ci­pa­ti­on is decisi­ve. For examp­le: If the seller holds 1 per cent or more in the GmbH, the so-called parti­al income proce­du­re appli­es and thus 60 per cent of the profit is taxable. For share­hol­dings of less than 1 per cent, the so-called final withhol­ding tax applies.

Prima­ri­ly, there are also diffe­ren­ces regar­ding taxati­on. For examp­le, in the case of the sale of shares, this depends on who is the share­hol­der in the GmbH. The follo­wing is a brief list:

Priva­te individualapprox. 25 per cent income tax
Sole proprietorships/partnerships25 percent income tax plus trade tax
GmbH/Holding compa­ny1.5 per cent corpo­ra­ti­on and trade tax

More on the topic: In our contri­bu­ti­on Sell GmbH Taxes we give you 8 tips for optimal taxation!

Legal, risks and liability

The decisi­ve advan­ta­ge of a limit­ed liabi­li­ty compa­ny is the liabi­li­ty requi­re­ments, which means that general­ly only the compa­ny is liable without the perso­nal liabi­li­ty of the share­hol­ders. The share­hol­ders are only liable for the Raising of the share capital agreed in the artic­les of associa­ti­on.

The general safeguar­ding during the imple­men­ta­ti­on is carri­ed out by a perso­nal­ly commis­sio­ned lawyer who prepa­res a draft contract accor­ding to the desired speci­fi­ca­ti­ons and presents it to the buyer party. This has the advan­ta­ge that any clauses of the detail­ed safeguar­ding of the buyer party could be overloo­ked despi­te careful exami­na­ti­on. The draft purcha­se agree­ment provi­des the other party with struc­tu­re and content. The commis­sio­ned lawyer will thus also choose those formu­la­ti­ons that prima­ri­ly corre­spond to the interest of the client

In Germa­ny, the trans­fer of shares is always subject to the GmbH Act, in parti­cu­lar §15 GmbHG.

Right of first refusal under the share­hol­ders’ agree­ment: What does this mean and what problems can arise? A memoran­dum or artic­les of associa­ti­on may contain various provi­si­ons, such as the granting of a right of first refusal to existing share­hol­ders and possi­ble provi­si­ons for the sale of GmbH shares if this is not direct­ly claimed. The sale of GmbH shares is subject to a resolu­ti­on. The blocking minori­ty refers to the share with which share­hol­ders can prevent resolu­ti­ons. A majori­ty is requi­red for the imple­men­ta­ti­on of various resolutions.


The GmbH acqui­res its own shares

In princi­ple, a GmbH is legal­ly permit­ted to acqui­re its own shares. However, various legal restric­tions apply to the acqui­si­ti­on, such as shares whose contri­bu­ti­on obliga­ti­on has not been paid in full. Here, appli­ca­ble law appli­es and cannot be circum­ven­ted. Other devia­ting agree­ments in the artic­les of associa­ti­on are there­fo­re invalid. However, a suita­ble lawyer for compa­ny law should of course be consul­ted on this.

What happens to share capital when a GmbH is sold?

As a rule, the sale of GmbH shares does not change the share capital of the GmbH, which as a legal construct must always have the agreed minimum amount. Nevert­hel­ess, a sale can also be used to change the share capital.

5 possi­ble mista­kes when selling GmbH shares

An examp­le would be the so-called split­ting of the compa­ny. The share­hol­der sells his shares and, for examp­le, rents his own proper­ty to the GmbH before the sale. Due to the sale, the rental relati­onship with the GmbH is now termi­na­ted. Conse­quent­ly, this results in a ficti­tious re-sale, which is separa­te­ly taxable.

The decis­i­on to divest oneself of GmbH shares and thus possi­bly decide against possi­ble market develo­p­ments and the expan­si­on of business poten­ti­al can of course have the most diver­se motives. There­fo­re, it is advisa­ble to talk to an M&A advisor, a lawyer or a tax advisor and to openly address one’s own points and thus explo­re possi­ble other points of view.

The requi­re­ments of any valid artic­les of associa­ti­on of a compa­ny must be compli­ed with and any agreed advan­ce sale rights granted. However, if this is not the case, the seller may assume that there is a Possi­ble selec­tion of interes­ted parties There may be people who have not yet heard of the inten­ti­on to sell and who could be poten­ti­al buyers. Thus, it is advisa­ble to contact, for examp­le, auditors, M&A consul­tants or specia­li­sed law firms that can reali­sti­cal­ly assess the buyer market and anony­mously approach interes­ted parties under­co­ver. If the inten­ti­on to sell becomes public, this could unsett­le employees, custo­mers and suppli­ers and lead to considera­ble damage.

The available audit results of a due diligence, own empiri­cal values and best market knowledge are extre­me­ly helpful for a mature sales strategy and condu­ci­ve during negotia­ti­ons. And it makes sense for these complex proces­ses, which are Support from experts who can demons­tra­b­ly show with referen­ces that they have regular­ly been invol­ved in sales negotia­ti­ons (M&A transac­tions) and whose experi­ence offers many advantages.

The signing of sale agree­ments is usual­ly irrever­si­ble, so it is advisa­ble to consider all possi­ble contin­gen­ci­es and exclu­sio­na­ry points in order to be on the safe side. As a book tip for an overview of the exten­si­ve topics, chances and mista­kes of a planned sale of shares, ?Compa­ny succes­si­on - the process knowledge?. 

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