Selling a Company in Germany

When selling a company, each of the necessary steps should be meticulously prepared. To this end, the utmost care is already required in the phase of pre-contractual negotiations – this applies in particular to the seller side. To inform potential buyers about the current situation of the company, information about the company is usually communicated during the pre-contractual negotiations, which forms the basis for the purchase decision. Consequently, disclosing false information could lead to a subsequent claim for damages by the buyer against the seller. To avoid possible pitfalls and to be optimally prepared for the negotiations, we recommend that you use the services of our German corporate lawyers. Our legal experts will ensure that you receive comprehensive advice on all legal aspects of the sale of a company so that you are always on the safe side.

If the buyer is interested in acquiring a company, disclosing and obtaining information relevant to the company is necessary. The seller is subject to a special duty of disclosure and due diligence. This already applies to the pre-contractual negotiation phase. If the seller breaches their duty of disclosure and due diligence, they are generally liable to the buyer, with the consequence that they may be responsible for damages. The exclusion of liability is then no longer possible.

The entire sales process consists, among other things, of a flow of information between the seller and the potential buyer. Whether the latter will buy the company is still being determined in the preparatory phase of the contract negotiations. Therefore, it is of enormous importance that the protection of the exchanged information is guaranteed at this stage. For this purpose, a non-disclosure or confidentiality agreement (NDA) is usually concluded between the parties. This is to ensure that the information disclosed does not become public. A contractual penalty is often agreed upon in this context, which becomes due during a breach of duty.

The NDA is a legally binding agreement that ensures that sensitive information shared during the negotiations remains confidential and prohibits unauthorised disclosure. The NDA should specify the scope of confidential information covered, the purpose for which it can be used, and the duration of the confidentiality obligations.

Another option available involves the use of non-competition agreements. Non-competition agreements (non-compete clauses or restrictive covenants) can be enforceable in Germany if they are reasonable in scope, duration, and geographic limitation. The employee or seller must also receive adequate compensation for agreeing to the non-competition obligation.

To ensure compliance and maximise the enforceability of non-competition agreements, it is advisable to seek legal counsel to draft agreements that align with German law and balance the interests of the parties involved.

The corporate lawyers at Schlun & Elseven Rechtsanwälte will be happy to advise you in this phase of the sale of your company. Whether in German employment, corporate, contract or tax law questions – our dedicated legal team will accompany you in all aspects and phases of the sale of your company. We will be at your side with advice and support in the pre-contractual negotiations.

Once the buyer has expressed a clear intention to buy through a letter of intent, they usually start the due diligence process on your company.

Our team will advise you on carrying out legal and financial due diligence so that you are well-prepared to start negotiations with the buyer. To ensure that the valuation of your business is as accurate as possible, our lawyers carry out the necessary analyses using standard market valuation procedures and methods. We ensure that the review of the company is carried out without any surprises from a legal, economic and financial point of view. Should problems arise here, this can significantly slow down the purchase process. Therefore, it is crucial for a smooth process that your company is optimally prepared for the investigation.

Any information necessary for the sale is collected and forwarded to the buyer during this examination. The buyer can then analyse the information to get a clear picture of the potential risks and use this to decide on the purchase.

Our lawyers regularly advise on legal and financial due diligence and intellectual property valuation in Germany. Our legal, due diligence services include reviewing documents such as supply agreements, customer contracts, licences, leases and organisational documents, shareholders’ agreements and company statutes. In essence, due diligence ensures the buyer knows all legal risks and potential liabilities in acquiring the business. The seller’s transparency is essential at this stage of the sale. In this way, the seller reduces the risk of liability.

Financial due diligence involves assessing the current economic situation of the company. The value of the intellectual property can further drive up the price, especially if the company owns valuable trademarks, copyrights and patents. The legal and financial review is precious for companies that want to innovate existing models and brands further.

Our team advises you on environmental due diligence, which focuses on reviewing current environmental reports and certifications.

Working with our legal experts ensures your company is organised, efficient and adequately prepared for the due diligence process. Our lawyers will carefully follow the process to ensure that every material aspect is thoroughly documented and that your company is accurately assessed.

Moreover, our intellectual property lawyers are available to advise on IP rights and the transfer of valuable intangible assets. Our team will conduct a thorough IP due diligence process to identify and evaluate all IP assets owned or used by the company. This inventory includes trademarks, patents, copyrights, trade secrets, domain names, software, and any licenses or agreements related to IP. During this process, our lawyers will verify the IP assets’ ownership, validity, and enforceability, ensuring that the seller has the necessary rights to transfer them.

During the sale, our lawyers will assist our clients with clearly defining which IP assets will be transferred as part of the sale. This process can be done through specific sales agreement provisions or a separate IP assignment agreement. Within these agreements, we will seek to include requirements ensuring that all necessary documentation, registrations, and filings are completed to transfer IP rights to the buyer effectively.

As important as defining the assets is, stating the restrictions and limitations is also essential. Our team is ready to examine and review any existing licenses, contracts, or agreements involving IP rights to determine any restrictions or limitations on transferring or assigning those rights. Such a process may include obtaining necessary consent or waivers from third parties if required. It also involves identifying any encumbrances on the IP assets, such as security interests or liens, and addressing their removal or satisfaction before the sale.

Furthermore, it can be considered to retain license agreements with the buyer. Under such an arrangement, the seller can seek certain rights to use the IP assets after the sale. The license should define the scope, duration, and associated royalties or fees.

During this process, it is essential to work with IP specialists and legal counsel experienced in IP matters to navigate the complexities of IP rights during a company sale. They can help ensure proper identification, valuation, transfer, and protection of IP assets and assist in drafting agreements that address the specific needs and concerns of the parties involved.

Our German corporate law team will advise you on drafting and reviewing all necessary contracts. We assist you in listing all your company’s assets and liabilities and determining your company’s actual value. The assets relevant for the calculation include:

• material assets,
• intellectual property (trademarks and patents)
• brand assets (including the company name, logo and website)
• debts and liabilities of the business.

Once the parties have agreed on the terms and conditions as well as the contents of the contract, our lawyers will ensure that it complies with German law and is legally binding. The exact provisions to be complied with in the conclusion of the agreement depend on whether it is an asset or a share deal. Since an asset deal only involves the transfer of individual assets or business assets, no specific form is usually required. In a share deal, on the other hand, the buyer acquires shares in the company/business. Therefore, notarial certification is needed here (Section 15 paragraph 4 Acts on Limited Liability Companies, GmbHG). Our lawyers will happily review the company purchase agreement and ensure your interests are always considered when drafting it.

Schlun & Elseven offers comprehensive legal advice on German employment, tax and contract law issues. We are happy to be your contact in cross-border cases and support you.

It is not uncommon for conflicts and disagreements to arise during or after selling a company in Germany. At Schlun & Elseven Rechtsanwälte, our lawyers are available to advise clients in all aspects of dispute resolution. The exact choice of dispute resolution method will depend on the parties’ preferences and the nature of the dispute.

Direct negotiations are often the starting point of engagement. Our team includes experienced negotiators who can ensure your interests are expressed clearly. This method allows for direct communication without requiring mediators, arbitrators or judges. It is flexible and informal; however, finding a mutually acceptable solution in significant disputes may be challenging.

Arbitration is a prevalent method for resolving disputes in Germany, particularly for complex or international transactions. The parties agree to submit their dispute to one or more arbitrators who render a binding decision, known as an arbitral award. The arbitration process is typically private and governed by the rules of a chosen arbitration institution or the German Arbitration Act. The award is enforceable under national and international law.

If negotiation, out-of-court settlements, or arbitration fails to resolve the dispute, the parties can resort to litigation by initiating a lawsuit in the German court system. Depending on the complexity and value of the conflict, it may be brought before local or regional courts, state courts, or specialized commercial courts. The German court system provides a robust and transparent framework for resolving disputes, but litigation can be time-consuming and expensive.

It’s worth noting that some dispute resolution methods, such as arbitration, require the inclusion of specific dispute resolution clauses in the sales agreement or separate agreements between the parties. These clauses define the chosen method and provide governing rules and procedures details.

When determining the appropriate method of dispute resolution, it is advisable to consider factors such as the nature and complexity of the dispute, the desired level of confidentiality, the cost and time considerations, and the enforceability of the final decision.