Company acquisition: share deal versus asset deal

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Persons or companies seeking to purchase a company at home or abroad are literally faced with two options. They can purchase a certificate which reads: "You are the owner of the whole shop" (= share deal) or they can go through the shop and buy all the products so that shelves are empty and finally also buy the cash register (= asset deal).
 
"It depends on the respective tax and entrepreneurial basis as to whether the share deal or asset deal is more attractive", explains Michael Wiehl, manager of the international M&A practice group at Rödl & Partner.
 

Purchase of the company shares or purchase of individual assets

With a share deal the purchaser acquires the company by buying all or almost all of the shares of a partnership or corporation. In the case of the asset deal he buys the assets of the company and has the individual assets transferred such as production lines, real estate, buildings, facilities, inventory and patents and all contracts and liabilities of the company.
 

Advantages of the asset deal in insolvency cases and a company crisis

Due to the fact that the purchaser with an asset deal takes a detailed look at each item before he puts it in the shopping trolley, he knows which obligations he has and can partly take care of these. This is because in connection with an asset deal the seller is liable for the obligations of the company. The exception to this is any operating tax which has come into being for the respective part of the company before the purchase takes place. The purchaser and seller are both liable for this tax.
 
In the case of a share deal the company liabilities are passed on to the purchaser. The assets and liabilities of the company which is taken over remain unchanged. If the company which is taken over is in an economic crisis or is in danger of becoming insolvent, the purchaser is obliged if necessary to file for insolvency proceedings. This makes the share deal less attractive in a crisis.
 
With the asset deal on the other hand the purchaser can only pick out the assets he wants. If the company is already insolvent, the purchaser is not liable for liabilities to employees taken on when the transfer of ownership is made. In addition, the insolvency administrator has extraordinary termination rights in the case of a long-term debt situation and can therefore separate the company from long-term contractual obligations and at least partly avoid liability risks.
 

The advantage of the share deal: a lean contract

If on the other hand there is no crisis pending, the share deal is the better option and the option more frequently used in Germany. Due to the fact that with a share deal the purchaser also acquires all of the liabilities and liability risks, special liability regulations are required in the contract to ensure that the seller is also liable for the stocks and condition of the assets acquired by the purchaser.
 

Challenges associated with an asset deal

The contractual arrangements required with an asset deal are complex right from the start. Each individual asset to be sold is included in the purchase contract together with the employment, contractual and legal relationships.
  • According to the principle of legal certainty, it is important that the transferred assets can be defined without any doubt. A formulation such as "all assets are transferred which are necessary for business operations" is not sufficient. The permanent establishments must be named and each respective employment contract.
  • Intangible assets and their transfer represent a challenge. This includes the industrial property rights such as trademarks and patents, the name of the company which is described as goodwill and other expertise which is included in the company. The entrepreneurial and tax valuation is demanding and also the correct description is not easy.
  • Formal requirements play an important role with the transfer of individual assets. If, for example, the company land is also transferred, the complete asset purchase contract requires a notarial certificate.
  • Approval from each contract partner of the seller is required for the transfer of the contractual relationships if contracts are carried over. If the respective contract partner does not agree, the contracts do not pass over to the purchaser. The purchaser must therefore make efforts to acquire the approval of important contract partners in good time.
 

Due diligence: study the opportunities and risks with due care

In order to make the right decision between an asset deal or share deal, the potential purchaser must thoroughly study the target company with the aid of due diligence, i.e. the consideration of opportunities and risks and in particular determine the depreciable amount, liability risks and economic stability.
 
"Due diligence means due care for a good reason", explains M&A expert Wiehl. This is because only a thorough examination of the tax and economic circumstances can enable the purchaser to find the right solution for his company acquisition.
 
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