With a share deal, companies and private investors have the opportunity to take over another company in whole or in part. But how do transactions of this kind work?
Frequently asked questionsSee all questions
What's a share deal?
On this page we explain all important aspects around this topic in an understandable way. The share deal is one of the most important forms of company acquisition. The buyer acquires shares in his company from the seller. In this process, the company is transferred to the buyer "as a whole". This also applies to existing contracts, liabilities, claims and other rights and obligations. Whether certain risks such as tax debts must be borne by the buyer or the seller can be regulated contractually.
From a legal point of view, the share deal constitutes a so-called legal purchase pursuant to § 453 I BGB (German Civil Code). The "object of purchase" within the meaning of the German Civil Code (BGB) are either company shares in a partnership, business shares (GmbH shares) or shares.
Share Deal: Reasons and Benefits
In principle, a share deal makes sense if the company to be sold (also called target company) is in a solid economic condition and the risks of the takeover are calculable. Since the previous company remains in existence, continuity is also ensured. This is a particular advantage if the target company has a positive image and long-term (profitable) customer contracts, for example. Last but not least, a share deal is relatively easy to complete compared to other forms of company acquisition. For example, in an asset deal it is necessary to list each asset individually in the sales contract. In the case of acquisition by means of a share deal, however, there is only oneobject of purchase, namely company shares (cf. section Share deal vs. asset deal).
A share deal can also be interesting if the target company owns real estate in a region with high real estate transfer tax. Due to the enormous tax implications, we will examine this point separately below.
Share deal for real estate: no land transfer tax due
As mentioned above, purchasers do not acquire individual assets as part of a share deal. This also applies to plots of land including the real estate on them. Accordingly, no real estate transfer tax is due. Since it is not uncommon for land acquisitions to be taxed at a rate of six percent or more, this can result in significant tax savings.
This scenario is viewed critically if, prior to the share deal, a company is set up specifically to own the corresponding real estate in order to "avoid" the real estate transfer tax. There are claims from various warehouses to close this "tax loophole".
Special feature of the share deal: 95 percent vs. 100 percent
In order to better understand the tax specificity of the share deal in real estate transactions, one detail is important: If more than 95 percent of the shares in a share deal are transferred to the buyer within 5 years, the real estate transfer tax is due. If, on the other hand, a buyer acquires less than 95 percent of a company within this period, there is no change of ownership of the land. Accordingly, no real estate transfer tax has to be paid.
What are the risks and disadvantages of a share deal?
The simple settlement and the tax advantages of a share deal are offset by a number of risks. First of all, it should be emphasized once again that the acquirer buys all liabilities and liability risks with the share deal, unless otherwise stipulated in the purchase agreement. Moreover, the seller is not always the actual owner of all assets. Some assets may only have been borrowed, leased or purchased under retention of title. It should also be noted that although contracts concluded (for example with suppliers and banks) generally continue to exist, in practice they may contain a change-of-control clause. Formulations of this kind entitle the contractual partner to terminate the contract if there is a change of ownership in the company.
If the acquired company is in crisis or even facing insolvency, the buyer may have to file for insolvency. In such scenarios, a share deal is therefore extremely risky. In addition to the purchase price, the acquirer would also have to raise the necessary financial resources for a renovation. If important factors have been overlooked due to time pressure, the remediation may fail. In this case, both the purchase price and the remediation investments would be lost.
What should I bear in mind when dealing with a share deal after an insolvency has been opened?
Basically, the takeover of insolvent companies can be interesting from a financial point of view. As a rule, however, the so-called asset deal is preferred in this scenario, as the buyer can select the assets to be taken over and leave liabilities behind.
In special cases, however, it is still conceivable to use the Share Deal. The basis for this is provided by the ESUG (Act to Further Facilitate the Restructuring of Enterprises). Here the insolvency is settled in self-administration. A share deal is possible in the subsequent insolvency plan proceedings. The creditors will then be compensated from the capital gain achieved in accordance with the insolvency plan.
Can a sole proprietorship be taken over by means of a share deal?
Share deals are only possible with a corporation and a partnership. In the case of individual companies, however, this type of company acquisition is ruled out because there are no shares in the company. Rather, the sole proprietor himself is the entrepreneur. However, it would be conceivable to convert the individual company into a company prior to a share deal in order to be able to complete the transaction.
Does the Share Deal result in a transfer of operations?
§ 613a BGB states: "If an enterprise or part of an enterprise is transferred to another owner by legal transaction, the latter shall enter into the rights and obligations arising from the employment relationships existing at the time of the transfer". When a company is acquired, employment relationships are therefore generally transferred to the buyer. However, since the share deal only involves a transfer of shares, the employer does not change. The transferred company continues to exist unchanged. Insofar § 613a BGB does not apply. Accordingly, a share deal initially has no effect on employees. A possible reduction in staff after the transaction is governed solely by the Dismissal Protection Act.
Share Deal vs. Asset Deal: What are the differences?
The main alternative to the share deal is the so-called asset deal. In this variant, the buyer does not acquire any shares, but the assets of the target company in the form of individual assets. These include, for example, land, buildings, contracts, patents and production facilities. The advantage of this variant is that each asset can be selected individually, while in a Share Deal all assets are virtually taken over as a "black box". However, with asset deals, each asset must also be named individually in the sales contract, which makes the contract design extremely complex.
There are also clear differences between share deals and asset deals in tax law. The company shares acquired within the scope of a share deal cannot be depreciated. The situation is different for individual assets, which can very well be written off for tax purposes.
Which of the two options should be preferred depends on the individual scenario and requires careful due diligence. Important decision criteria are the available time frame (share deal is faster), the economic situation of the target company, the available depreciation volume and existing liability risks.
Meinolf Schäfer, Senior Director Sales & Marketing
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