Share deal vs. asset deal: Optimal structure of a transaction
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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 refer to individual segments. Both contents of a purchase process come into play in certain situations.

Table of contents

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.

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Purchase of company shares

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

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.

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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.

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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.

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KERN Share Deal Asset Deal Partner Map

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?

External support from experts is particularly recommended for the following three points of a transaction:  

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.