The choice between an asset deal and a share deal affects contracts, permits, employees, the company name, liabilities and the formal requirements for signing and closing.
This article was first published in AnwZert HaGesR 3/2019. It therefore reflects the law and M&A practice as of 2019. Later statutory amendments, court decisions or developments in M&A practice have not been incorporated silently.
Parts 1 and 2 addressed the preparation and review of the target company. Part 3 focuses on the acquisition agreement and the choice between an asset deal and a share deal.
The findings of due diligence must be translated into a suitable transaction structure and a clear agreement. The chosen structure determines who becomes a contractual party, which assets and rights transfer, whether third-party consents are needed, how employees and permits are treated and whether notarisation is required.
1. Forms of acquisition agreement
The two main transaction structures are:
- Asset deal: acquisition of the relevant assets and legal positions of the business.
- Share deal: acquisition of shares in the company operating the business.
The agreements are commonly called:
- Asset Purchase Agreement (APA), or
- Share Purchase Agreement (SPA).
Mixed structures are also possible, including an Asset and Share Purchase Agreement (ASPA).
The transaction structure should be tailored to the target company and the parties’ objectives. Relevant issues include the assets, contracts, permits, employees, liabilities, branding, know-how, closing conditions and formal requirements.
2. Asset deal: individual transfers
In an asset deal, the existing business owner sells the relevant assets and legal positions. The seller may be an individual, partnership or corporation.
The buyer may acquire land, buildings, equipment, inventory, receivables, rights, trademarks, patents, software, licences, know-how, customer and supplier contracts, employees and selected liabilities.
The assets are generally transferred individually under the rules applicable to each type of asset or right. The agreement and its schedules should identify the transferred items clearly enough that they can be distinguished from the seller’s other property at the time of transfer.
2.1 Business acquisition or purchase of individual assets?
An asset deal qualifies as a company acquisition where the assets, rights, intangible assets, employees and contracts required to continue the existing business are transferred. The purchase of isolated assets, even valuable ones such as trademarks or know-how, does not necessarily constitute the acquisition of a business.
2.2 Remaining shell company
After an asset deal, the previous company generally remains without the transferred business assets. The agreement should clearly define the assets and liabilities that remain with the seller and address outstanding contracts, litigation, permits, employees who object to a transfer and the company name.
3. Share deal: transfer of the equity interest
In a share deal, the buyer acquires the legal entity operating the business by purchasing shares in a partnership or GmbH, or shares in an AG or KGaA.
The target remains the legal entity. Its assets, contracts, permits, employment relationships and liabilities generally remain with the target.
A share deal is generally treated as a purchase of a right. If the buyer acquires sufficient voting and participation rights to exercise entrepreneurial control, the transaction will generally constitute the acquisition of a business. The required percentage cannot be determined identically for all companies.
4. Contracts and public permits
The target’s contractual relationships are often a major component of its value.
4.1 Contracts in an asset deal
Each contract intended to transfer to the buyer generally requires an effective contractual transfer and the consent of the relevant counterparty. This is particularly important for key customer, supplier, financing, lease and licence agreements.
A refusal may reduce value, require an alternative solution, trigger a price adjustment or become a deal breaker. Consents should therefore be obtained before closing where possible or made closing conditions in the acquisition agreement.
4.2 Contracts in a share deal
In a share deal, the target remains the contractual party. However, change-of-control provisions may require consent, permit termination or cause the agreement to end upon a change in ownership.
A share deal therefore does not eliminate the need to review material contracts.
4.3 Public permits
In a share deal, permits generally remain with the target because the legal entity remains unchanged. In an asset deal, the buyer must assess whether permits are transferable, require notification or consent, or must be obtained again.
The specific analysis may involve permits under environmental, competition, foreign-trade, banking or other regulatory laws, depending on the business.
5. Employees
The transaction structure may affect the transfer of employees and key personnel.
5.1 Share deal
In a share deal, the employer generally remains the same legal entity. The change of shareholder does not itself change the employment contracts.
5.2 Asset deal
An asset deal may constitute a transfer of business under Section 613a BGB. Employment relationships generally follow the transferring business and the buyer enters into the employer’s rights and obligations by operation of law.
Employees may object to the transfer subject to the statutory requirements. If the former employer is left as a shell company and the former workplace disappears, the practical consequences for an objecting employee may be significant.
The due diligence and acquisition agreement should therefore address which business unit transfers, which employees are affected, key employees, information duties and possible objections.
6. Company name and branding
The company name may have substantial economic value because of its reputation, customer trust and market recognition.
6.1 Share deal
The company name generally remains with the target in a share deal. For corporations, this is generally so even if the name contains the former shareholder’s personal name. For partnerships, continuation of the name may require the seller’s consent.
6.2 Asset deal
In an asset deal, the company name generally remains with the shell company. The buyer cannot automatically continue using it with the transferred business. The legal and registration requirements for continuation, a new company name and distinctiveness must be reviewed.
Trademarks, domains and other branding rights may also require separate transfer arrangements.
7. Formal requirements
An acquisition agreement generally does not require a specific form. However, statutory formal requirements may require notarisation in particular transactions.
Non-compliance can render the agreement void and threaten the entire transaction. Even where notarisation is not mandatory, a written agreement with precise schedules is advisable for legal certainty and evidentiary reasons.
8. Formal requirements in an asset deal
8.1 Real estate
If the asset deal includes an obligation to transfer real estate, the agreement will generally require notarisation under Section 311b(1) BGB. A defective agreement may be cured by conveyance and registration under the statutory rules, but a period of legal uncertainty may arise before registration.
8.2 Unified agreement
An asset deal may involve many assets and rights. If these are economically and legally connected to a real-estate transfer in one agreement, the notarisation requirement may extend to the whole transaction. Artificially splitting a unified transaction can create invalidity risks.
8.3 Present assets and catch-all clauses
A commitment to transfer all present assets or a fraction of present assets may require notarisation. A catch-all clause covering assets not individually listed may also affect the form requirement. The schedules should therefore identify the assets precisely and the agreement should be reviewed as a whole.
9. Formal requirements in a share deal
9.1 Partnerships
The sale and transfer of interests in partnerships generally do not require notarisation under the statutory provisions governing transfers of present assets. Exceptions may arise where the partnership structure is deliberately used to circumvent a form requirement.
For a corporate general partner structure, the transfer of interests in the general-partner GmbH and limited partnership interests may be legally and economically connected. In that case, the form requirement may extend to the entire transaction.
9.2 GmbH shares
The obligation to assign and the assignment of shares in a German GmbH generally require notarisation under Section 15(3) and (4) GmbHG. Non-compliance may render the transaction void, subject to statutory curing rules.
The purchase agreement, transfer and assignment should be coordinated carefully, especially where signing and closing occur at different times.
9.3 Shares in an AG or KGaA
The purchase and transfer agreement for shares in an AG generally does not require a specific form. Notarisation may nevertheless be required if the same unified agreement also transfers real estate or another form-sensitive asset.
10. Notarisation abroad
Foreign notarisation may be effective if it is equivalent to German notarisation in the status and qualification of the notary and in the procedure used. The issue is particularly sensitive for German GmbH shares because German corporate and register requirements must be respected.
Before choosing foreign notarisation, the parties should assess:
- equivalence of the foreign act,
- authority and qualification of the foreign notary,
- requirements for the shareholder list,
- filings and notices to the German register,
- applicable corporate law,
- any interim period before the transfer becomes effective,
- practical coordination of signing and closing.
Foreign notarisation is not merely a cost-saving decision. The transaction documents should be reviewed as a whole and the client should be informed of any uncertainty.
11. Asset deal or share deal: initial comparison
| Issue | Asset deal | Share deal |
|---|---|---|
| Subject matter | Individual assets, rights, contracts and potentially liabilities | Shares or equity interests |
| Legal entity | Seller generally remains with the assets not transferred | Target remains in existence |
| Contracts | Individual transfer; counterparty consent often required | Generally remain with target |
| Change of control | Less central to transfer, but consents are important | May trigger consent, termination or expiry |
| Employees | Transfer of business under Section 613a BGB may apply | Employer generally remains unchanged |
| Permits | Transferability or re-application must be checked | Generally remain with target |
| Company name | Generally remains with shell company | Generally remains with target |
| GmbH shares | Not transferred unless separately agreed | Notarisation generally required |
| Real estate | Notarisation generally relevant | Relevant if included in a unified agreement |
| Liability profile | Buyer can select assets, subject to specific risks | Buyer acquires the target with its history and liabilities |
This table is a first orientation only. The appropriate structure must be determined by reference to the target company, due-diligence findings and commercial objectives.
12. Practical checklist
Transaction structure
- Decide between an asset deal, share deal or mixed structure.
- Define the rights and assets to be transferred.
- Identify assumed and excluded liabilities.
- Allocate residual risks.
Contracts and permits
- Identify material contracts requiring transfer or consent.
- Review change-of-control clauses.
- Confirm permit transferability.
- Include required consents as closing conditions.
Employees
- Assess whether a transfer of business occurs.
- Identify key employees.
- Review information and objection rights.
- Address employment consequences in the agreement.
Company name and IP
- Confirm whether the company name may continue.
- Transfer trademarks, domains and other identifiers where necessary.
- Check registration and distinctiveness requirements.
Form and closing
- Determine whether notarisation is required.
- Review real-estate and present-asset provisions.
- Avoid unclear catch-all provisions.
- Ensure assets are precisely scheduled.
- Coordinate notarial transfer of GmbH shares.
- Review foreign notarisation and German register requirements.
- Coordinate signing, closing and register filings.
Legal notice
This article provides general information based on the law and M&A practice as of 2019. It is not a substitute for reviewing the specific transaction structure, contracts, permits, employment relationships or formal requirements.
Frequently asked questions
What is an asset deal?
An asset deal transfers the relevant assets, rights, contracts and potentially liabilities of the business individually to the buyer. The transferred items must be identified clearly.
What is a share deal?
A share deal transfers shares in the target company. The target remains in existence and generally continues to hold its assets, contracts, permits, employees and liabilities.
Is an asset deal or a share deal better?
Neither structure is universally better. The choice depends on contracts, permits, employees, liabilities, assets, financing and the commercial objectives of the parties.
Do contracts have to be transferred individually in an asset deal?
Generally, yes. The transfer of a contract usually requires the consent of the relevant counterparty. Consents for material contracts should be obtained before closing or made closing conditions.
Do contracts continue automatically in a share deal?
They generally remain with the target. However, change-of-control clauses may require consent or permit termination or expiry.
What happens to employees in a company acquisition?
In a share deal, the employer generally remains the same. In an asset deal, a transfer of business under Section 613a BGB may cause employment relationships to transfer to the buyer, subject to statutory employee rights.
What happens to the company name in an asset deal?
The company name generally remains with the seller’s shell company. The buyer cannot automatically continue using it with the transferred business.
When must an acquisition agreement be notarised?
Notarisation may be required for real estate, certain transfers of present assets and the sale and assignment of German GmbH shares. The entire agreement and its schedules must be reviewed.
Does the transfer of AG shares require notarisation?
The purchase and transfer agreement for AG shares generally does not require a specific form. Notarisation may be required if the same unified agreement also contains a real-estate transfer or another form-sensitive transaction.
Is foreign notarisation possible?
It may be effective if it is equivalent to German notarisation. For German GmbH shares, the parties must also address German corporate and register requirements.
What is a catch-all clause?
It is a clause intended to transfer additional assets not individually listed. Its use may affect the notarisation requirement and should be reviewed carefully.