Discuss share deal or asset deal at the desk

Share deal vs. asset deal: Optimal struc­tu­re of a transaction

Anyone who deals with the topic of buying or selling a compa­ny will sooner or later come across the buzzwords Asset Deal and Share Deal. It is important to know the diffe­ren­ces for practice.

What are the advan­ta­ges for buyers and sellers?

What diffe­ren­ces need to be taken into account with regard to taxes and formalities?

We would be happy to enligh­ten you.

You don’t have much time to read? Here are the most important facts about share and asset deals in compa­ny acquisitions:

  • At Share Deal the obliga­ti­ons and rights of the previous owner are trans­fer­red to the buyer.
  • Asset Deals do not include comple­te owner­ship, but relate to indivi­du­al segments.
  • From the buyer’s point of view, the advan­ta­ges for an asset deal often outweigh the disad­van­ta­ges for the seller in the case of a share deal.
  • Both contents of a buying process come into play in certain situations.

Share Deal and Asset Deal Defini­ti­on in Compa­ny Acquisitions

A Compa­ny acqui­si­ti­on can be struc­tu­red in two diffe­rent ways. In a share deal, the buyer acqui­res the Rights and dutieswhich consist of the owner­ship of the shares in the compa­ny. In a share deal, if all the shares in the compa­ny are bought out, the buyer gains control over the entire company.

With Asset Deal, the Econo­mic assets of the compa­ny in the foreground. In this case, the buyer acqui­res all or certain assets of the company.

How do these deal struc­tures differ?

The most important diffe­rence between a share deal and an asset deal is the scope of the transac­tion. In a share deal, all rights and obliga­ti­ons of the former owner are taken over. If the former owner was the Sole owner of a GmbH, all control of the compa­ny goes to the buyer. Thus, all assets and liabi­li­ties of the compa­ny are acqui­red, regard­less of how attrac­ti­ve they are.

An asset deal can be concluded to any extent. It is possi­ble to acqui­re a divisi­on, objects (fixed assets) or even just a locati­on of a compa­ny. Analog­ous to the share deal, liabi­li­ties can also be assumed by the buyer.

This Both contract struc­tures have advan­ta­ges and disad­van­ta­ges. This concerns in parti­cu­lar tax and legal frame­work condi­ti­ons (advan­ta­ges and disad­van­ta­ges) and is to be exami­ned subjec­tively with the glasses of the buyer or seller.

In order to be able to work with a Compa­ny sale to avoid making mista­kes, we recom­mend our webinar on this topic:

Find the best succes­sor for your compa­ny. How? We tell you in our online seminar.

Purcha­se of compa­ny shares

Schematic representation of the transaction via share deal

A share deal is only possi­ble for certain types of compa­nies. These include the OHG, the KG, the GmbH or the AG. In practi­ce, share deals are possi­ble with partner­ships, but are treated as asset deals for tax purpo­ses (e.g. with the GmbH & Co. KG). In the case of a purcha­se of compa­ny shares (share deal), all rights and obliga­ti­ons arising from the compa­ny shares are transferred.

These include voting rights, profit sharing, but also the liabi­li­ty risk. There­fo­re, before such a transac­tion, it should be careful­ly exami­ned how high the future risks actual­ly are. Of course, liabi­li­ties for the buyer or seller can also be excluded differ­ent­ly in the contract.

Purcha­se of assets

Graphical representation of the asset deal process

With the purcha­se of assets in an asset deal, their rights and obliga­ti­ons are trans­fer­red to the new owner. Even if the purcha­sed assets are assets, they can still be used to genera­te income. Liabi­li­ty risks arise. If, for examp­le, a produc­tion facili­ty is purcha­sed that manufac­tures a certain product, it can be Warran­ty claims should this product be defec­ti­ve. There­fo­re, even an asset deal is not without risk.

Liabi­li­ty

In a share deal, the so-called conti­nui­ty of liabi­li­ty appli­es, which means that the new owner is liable for all obliga­ti­ons arising after the takeover. Excep­ti­ons are, of course, those liabi­li­ties that expli­cit­ly remain with the seller in the purcha­se agree­ment. Legal­ly, the possi­ble claims first reach the compa­ny and must then be retrie­ved by the new owner from the previous share­hol­der via the contract. In case of doubt, this can take time and is a burden on the company.

Liabi­li­ty in an asset deal depends on the scope of the contract. This is becau­se only certain liabi­li­ties are assumed or objects are descri­bed concre­te­ly with their proper­ties (possi­bly also by means of expert opini­ons). The new owner is only liable for the liabi­li­ties assumed, if any, while the old owner is still liable for the remai­ning liabilities.

Advan­ta­ges / disad­van­ta­ges from the perspec­ti­ve of the buyer and the seller

From the seller’s point of view, the share deal is parti­cu­lar­ly popular. On the one hand, the share deal is usual­ly more attrac­ti­ve from a tax point of view and, on the other hand, a wealth of obliga­ti­ons from the past can be settled more straight­for­ward­ly as part of the Compa­ny succes­si­on be trans­fer­red. This point is addres­sed in the Section ‘Share Deal vs. Asset Deal - Which Tax is due? received. 

The trans­fer of liabi­li­ty is thus often more conve­ni­ent for the seller. However, a buyer will always try to limit his liabi­li­ty as the new owner by means of so-called guaran­tee clauses.

Graphical representation of advantages and disadvantages of the Share Deal.

For a buyer, an asset deal may be more attrac­ti­vebecau­se he has the choice of which parts of the compa­ny he wants to acqui­re. Thus, only the attrac­ti­ve parts of the compa­ny can be taken over. This not only limits the liabi­li­ty risk, but also signi­fi­cant­ly simpli­fies the integra­ti­on of the acqui­red parts of the compa­ny into the new parent company.

However, contracts with custo­mers or suppli­ers may have to be concluded from scratch becau­se the previous contrac­tu­al partner, the old compa­ny, was not taken over. Further advan­ta­ges are the higher and shorter depre­cia­ti­on possi­bi­li­ties of the invest­ments from a tax point of view.

Graphic representation of advantages and disadvantages of asset deals.

However, the Asset deal a disad­van­ta­ge that should not be undere­sti­ma­tedUnder commer­cial law, each indivi­du­al asset must be documen­ted and valued. Where­as in the case of the share deal this would only be neces­sa­ry for the acqui­red shares. This can become a problem in the detail­ed valua­ti­on, especi­al­ly in the case of exten­si­ve transac­tions with intan­gi­ble assets.

Another disad­van­ta­ge of the asset deal can be the afore­men­tio­ned trans­fer of legal relati­onships. Unless other­wi­se regula­ted, these are depen­dent on the consent of the contrac­tu­al partners. There may also be clauses that, for examp­le, grant clients the extra­or­di­na­ry right of termi­na­ti­on if the contrac­tu­al partner legal­ly changes. And associa­ted with this is the risk that some of the custo­mers could also turn away from the new owner in the worst case.

In additi­on to the lower cost, there is one parti­cu­lar scena­rio in which the share deal can be an advan­ta­ge for the buyer: The Takeover of a compe­ti­tor. In this scena­rio, the focus is on elimi­na­ting a compe­ti­tor and thus incre­asing one’s own market share. In this case, it makes sense to take over the entire company.

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Asset Deal - Share Deal - Which taxes apply?

In the case of a share deal, income taxes are incur­red by the seller, as the sale of a compa­ny invol­ves Income from a trade or business is invol­ved. However, the exact amount depends on the seller. If the seller is a corpo­ra­ti­on, about 1.5 % is to be expec­ted. If the seller is a natural person, the tax burden is signi­fi­cant­ly higher. Although the Parti­al income proce­du­re 40 % tax-free the tax burden is around 28 %.

In the case of an asset deal, on the other hand, a maximum tax burden of approx. 31.5 % for corpo­ra­ti­ons and with up to 47 % for a natural person as a salesperson.

There­fo­re, before a business transac­tion, it should be exami­ned whether an additio­nal corpo­ra­ti­on should be estab­lished in order to reduce the tax burden. 

What special features need to be taken into account in the case of a GmbH sale with an asset deal?

An asset deal is also possi­ble in the case of a GmbH. However, the follo­wing should be noted: In a GmbH, the managing direc­tors are entit­led to make all decis­i­ons at ordina­ry Legal transac­tions without the consent of the share­hol­ders to be made. Depen­ding on the scope of the asset deal or depen­ding on the GmbH agree­ment, an asset deal may fall under extra­or­di­na­ry legal transac­tions. In this case, the consent of the share­hol­ders is mandatory.

What formal requi­re­ments must be obser­ved for compa­ny purcha­se agreements?

The formal requi­re­ments set out in the Compa­ny purcha­se agree­ment to be obser­ved depend on the scope of the purcha­se agree­ment. In princi­ple, compa­ny purcha­se agree­ments can be concluded infor­mal­ly. However, notari­sa­ti­on becomes manda­to­ry as soon as GmbH shares or real estate are trans­fer­red. This means that a share deal for the sale of a GmbH must be notarised.

M&A advice on selec­ting the right deal structure

In corpo­ra­te transac­tions, it is helpful to consult experts. Especi­al­ly the choice of the right deal struc­tu­re has an impact on future liabi­li­ty risks, tax burdens and the purcha­se price. If suffi­ci­ent time is available for an inten­ded sale, weigh­ty advan­ta­ges can be construc­ted for the buyer.

A M&A consul­ting can advise on the follo­wing issues, among others:

  • What liabi­li­ty risks arise?
  • What guaran­tees does the seller provide?
  • What tax burden can be expected?
  • How can the tax burden be minimised?
  • How do existing change-of-control clauses affect the purcha­se price?
  • Can further change-of-control clauses increase the future purcha­se price?
  • What other regula­ti­ons must be taken into account when selling a company?
  • What price premi­um justi­fies giving up the prefer­red deal structure?
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Due Diligence - The risk assessment 

At the Due Diligence is a review of the risks that may arise from a corpo­ra­te transac­tion. In most cases, the scope of the questi­ons in the due diligence is prepared by the buyer. For larger transac­tions, a due diligence may also be commis­sio­ned in advan­ce by the seller. Due diligence an advan­ta­ge be. Buyers and sellers should be very aware and prudent about this very signi­fi­cant part of the sales process, thus safeguar­ding themsel­ves from both direc­tions for future problems after the sale.

Change-of-control clause - source of error not to be underestimated

Even though the number of corpo­ra­te transac­tions has risen sharply in recent years, the subject of Change of control clauses again and again for unneces­sa­ry costs. If such a clause is ancho­red in a contract, there is a right of termi­na­ti­on if control of the compa­ny or the contracts have been trans­fer­red in isola­ti­on. Depen­ding on the contract, such a clause can be an advan­ta­ge but also a disad­van­ta­ge for the new owner.

It is important to identi­fy, check and, if neces­sa­ry, price in all change-of-control clauses. Exten­ded special rights under the GDPR are added in the asset deal, which provi­de exten­ded protec­tion for the rights of contrac­tu­al partners of the previous company.

Commer­cial real estate special rule that can be exploited

Especi­al­ly when acqui­ring commer­cial real estate, a corpo­ra­te transac­tion can be a helpful tool. This is becau­se if at least 94 % of the shares are sold in a corpo­ra­te transac­tion, the Land trans­fer tax. This is a small fortu­ne, especi­al­ly in the case of large indus­tri­al facili­ties or office buildings close to the city centre. There­fo­re, it can make sense to buy out a compa­ny with suita­ble buildings with a share deal.

However, it must be careful­ly exami­ned what additio­nal risks are being bought in. An atten­ti­ve seller can profit from this regula­ti­on, becau­se the saved tax burden could be added to the price in advance.

Conclu­si­on: When should which contract struc­tu­re be chosen?

If the arguments for a share deal or asset deal are summa­ri­sed, the follo­wing conclu­si­on emerges:

It depends on how the buyer and seller view the situa­ti­on. If legal and/or tax optimi­sa­ti­on or risks are in the foreground, the choice must be made at an early stage.

However, the indivi­du­al situa­ti­on must always be conside­red. There­fo­re, every entre­pre­neur should be open to both struc­tures. In case of doubt, the advan­ta­ges and disad­van­ta­ges can be balan­ced out by a price premi­um or discount. Especi­al­ly with Complex corpo­ra­te transac­tions should be advised by an exter­nal consul­tant.

After all, experts who regular­ly deal with the subject matter not only help to save taxes, but also have experi­ence in conduc­ting negotia­ti­ons and finding compro­mi­ses. After all, at the end of the day, both parties have to feel comfor­ta­ble with the contract.