Buying a Business in Germany

From a legal perspective, purchasing a company in Germany is a highly complex process that always requires precise preparation and a careful approach. The following aspects, in particular, must be considered during pre-contractual negotiations:

• Non-disclosure agreement (NDA),
• exclusivity clause,
• letter of intent or term sheet.

The target company must be analysed as closely as possible as part of the pre-contractual negotiations. To this end, extensive information about the company is collected and exchanged as part of a due diligence process. In this way, it is possible to determine, among other things, whether the company is legally sound and economically profitable at the time of acquisition.

Subsequently, the contract as such and all legally relevant aspects must be examined before the contract is concluded – this includes, among other things

• cross-checking the contractual objects specified in the contract, the purchase price, and any clauses (e.g. ‘change of control’ clause),
• examination of existing legal and in particular employment relations,
• examination of guarantees and any assurances,
• preliminary consideration of financing.

If the reviews and analyses provide a favourable overall picture, the contract is signed and closed. The German lawyers at Schlun & Elseven Rechtsanwälte are at your side during this important phase. We will also support you after the contract has been signed to ensure that the company you have acquired is legally secure for the future.

Acquiring an existing company in Germany offers the following advantages over founding a company:

• The existing company identity: If you acquire a company, you benefit from an existing company identity and customer base. The fact that the company already has a certain level of recognition is of considerable value for the economic success of the continuation of the company.
• Accelerated procedure: The bureaucratic effort involved in acquiring a company is generally much less than when founding a company. This means you can utilise the company commercially more quickly and draw the corresponding profit from it.
• Reputation with banks/investors: By acquiring an existing company, you can benefit from its reputation. It is, therefore, essential to ensure that the company in question has a good reputation regarding its economic performance and creditworthiness. Our lawyers offer due diligence services in this regard so that you can be aware of the company’s standing from the outset.

Like all M&A (Mergers & Acquisitions) transactions, a company acquisition in Germany has certain risks and advantages. Although these cannot always be avoided, they can be minimised as much as possible with the proper risk management.

In Germany, the buyer of a company has the option of acquiring the target company through an asset deal or a share deal. A share deal involves the transfer of company shares. The asset deal, on the other hand, refers to the purchase of individual assets belonging to the company, which must be listed precisely in the purchase agreement. Each of the two forms offers certain advantages. In this context, it should be noted that a share deal must be notarised, whereas this is not necessary for an asset deal in Germany. The taxation of the transaction is also different.

Our lawyers will be happy to guide you through the complex M&A process. When a company is acquired or merged in Germany, the first question is whether two companies of the same size should be merged or whether one dominant company should take over the other. We will explain to you which course best meets your individual needs, subject the company in question to a due diligence review, and ensure that everything runs smoothly. We provide you with comprehensive advice on German competition and antitrust law. In addition, we will also explain how you should approach the company’s management board and how the negotiations can be a complete success.

Acquiring a shelf company in Germany offers a convenient way into the German market. A shelf company is registered in Germany but has no active business activities. The entrepreneur can immediately use this already established and registered company for business purposes. Consequently, they do not have to deal with the time-consuming process of setting up a company.

As the company already exists, the purchaser can immediately adapt its structures to their needs and objectives to realise the desired profits as soon as possible.

Changes can be made as soon as the shelf company has been acquired. For example, the company’s character can be adapted to the interests of specific investors. It is possible to relocate the company’s registered office, change the name or even the object of the company. Our lawyers will advise you on the options available and support you in legally implementing the desired changes.

As a rule, the seller or the seller’s advisor prepares the first draft of the purchase agreement. However, it is highly advisable to write down your ideas and requirements to strengthen your negotiating position. In any case, our lawyers will check the contract and discuss it with you in detail. We will work with you to draw up a purchase agreement that is to your complete satisfaction within a realistic timeframe.

The review we carry out covers all potentially critical points: From the preamble, which is often decisive in the interpretation of disputed clauses, to the type of purchase (asset or share deal) and the definition of warranties through to the purchase price and other provisions such as non-competition or arbitration clauses.

If there are any discrepancies, the purchase agreement will be redrafted if there is doubt. When determining a purchase price, careful consideration should always be given to whether a fixed purchase price or a purchase price adjustment based on future company developments should be agreed upon. This earn-out can be subsequently adjusted in the event of positive business development and the achievement of precisely defined targets. Both agreements, fixed purchase price and earn-out, can have advantages and disadvantages for both parties. Therefore, both parties should consider which type they prefer before the negotiations. The type of financing should also be included in the contract.

Cross-border transactions make it possible to quickly gain a foothold in a new market and thus quickly make a company more international. Germany has always been regarded as an ideal place to acquire a company – be it due to its location in the heart of Europe, its strong economy, its membership of the European Union or its excellently trained workforce.

However, the cross-border acquisition of a company has several distinctive features – particularly from a legal and cultural perspective. Even though international company purchase agreements usually regulate everything of legal relevance within them, it should be noted that the company purchase is not only relevant in terms of contract law. For example, areas of law such as employment, corporate, and antitrust law must be regularly considered when acquiring a company in Germany. Our specialised lawyers will inform you of your rights and obligations in this context and support you throughout the acquisition process. From due diligence and contract negotiations to contract drafting and final notarisation, we represent your interests with expertise and commitment.

Foreign investors need to be aware of specific regulations and restrictions related to buying a business in Germany. The German government has implemented various laws and regulations to protect national interests, ensure fair competition, and safeguard strategic sectors.

Foreign Investment Control: Germany has a foreign investment control regime known as the Foreign Trade and Payments Act (Außenwirtschaftsgesetz, AWG). The law allows the German government to review and potentially block foreign investors’ acquisitions of German companies if they threaten public order or security. Specific industries, such as defense, critical infrastructure, and technology sectors, are particularly scrutinised.

Industry-Specific Restrictions: Some industries have specific regulations and restrictions on foreign investment. For example, the banking and financial sector, insurance, media, telecommunications, energy, and defense industries have specific licensing requirements or limitations on foreign ownership. Researching and understanding any industry-specific regulations that may apply to the target business is crucial.

European Union (EU) and Competition Law: If the buyer is from another EU member state, the general principle of the free movement of capital and establishment within the EU applies, allowing for relatively unrestricted investment. However, antitrust and competition regulations must be considered to ensure compliance, particularly in cases involving significant market shares or potential anti-competitive effects.

Employment Regulations: Germany’s robust employment and employment laws protect employees’ rights, including those of the target company. Foreign investors must comply with German employment regulations regarding employment contracts, termination procedures, working hours, minimum wage, and employee benefits. Acquisitions may trigger information and consultation requirements with employee representative bodies.

Tax Considerations: Foreign investors should be aware of German tax laws, including corporate income tax, value-added tax (VAT), transfer pricing rules, and potential tax incentives or limitations. It is advisable to consult with a tax advisor to understand the specific tax implications and optimise the tax structure of the acquisition.

Foreign investors should consult legal professionals specialising in German corporate and commercial law to navigate these regulations, understand the implications, and ensure compliance throughout the acquisition process.