What to consider when buying a company: a guide

The purchase of a company can be one of the most important decisions in entrepreneurial life. In German law in particular, company acquisitions are complex processes that offer both opportunities and risks. In this article, you will learn everything you need to consider as the buyer and seller of a company - from the legal aspects to the choice between Asset Deal and Share Deal to important contract components and a practical checklist.

Asset deal vs. share deal: the differences

Share deal

At the Share deal the buyer acquires Company shares (e.g. GmbH shares). The advantage of this model lies in the simplicity of the transfer: The buyer takes over the entire company with all assets and liabilities. All existing contractslicenses and business relationships remain in force. However, the buyer is also responsible for all Liabilities of the company, which may not be recognizable at first glance.

AdvantageSimplicity of transfer and no need to transfer individual assets.

Disadvantage: The buyer assumes all Liabilities and potential contaminated sites.

Asset deal

At the Asset deal the buyer only buys certain assets of the company, such as real estate, machinery or patents. The advantage is that the buyer only takes over what he wants and therefore does not take on any existing liabilities or unwanted risks.

AdvantageThe buyer can select specific assets and take over the company "cleanly", without unwanted liabilities.

DisadvantageThe transfer of individual assets is more complex, and contracts and rights often have to be transferred individually.

Warranty for defects and liability when purchasing a company

Warranty for defects

A central point in the acquisition of a company is the Warranty for defects. The buyer wants to ensure that the company has no "hidden defects" that could lead to problems later on. Under German law, the Warranty regulated by law, but can often be included in the purchase restricted or excluded become. A common approach is the agreement of Guarantees by the seller, in which he assures that certain characteristics of the company (e.g. balance sheets, tax situation) are correct.

Tip: It is important to stipulate precisely in the purchase contract what guarantees the seller gives and what liability claims the buyer has in the event of defects. A thorough Due diligence before purchase helps to identify risks at an early stage.

Liability

In the case of a share deal, the buyer also acquires the company shares together with the Liability for all obligations of the company. In an asset deal, the buyer can usually limit liability by only taking over certain assets. To hedge against risks, the purchase agreement should Liability limits and Exclusions to avoid unforeseen problems.

Necessary components of a company purchase agreement

A Company purchase agreement is the centerpiece of every takeover. It regulates all relevant aspects of the purchase and ensures that both parties are legally protected. The most important components of such a contract include

1. object of purchase and transferred assets

Asset DealAll assets to be transferred (e.g. real estate, machinery, contracts) must be described in detail.

Share Deal: It must be precisely defined which Company shares are transferred and whether all existing rights and obligations are assumed.

2. purchase price and payment modalities

The Purchase price must be clearly defined. This can also include Payment modalities such as installment payments or earn-out clauses.

3 Liability and warranty

Regulations on liability and Warranty claims are essential. The seller can give guarantees on certain aspects of the company (e.g. that there are no tax liabilities). Also a Upper liability limit can be specified to minimize the risk for the seller.

4. handover and integration planning

The contract should contain provisions on Transfer of contracts and to the Transition of employees included. The Integration of the acquired company must be planned to ensure a smooth transition.

Checklist for buyers of a company

1. carry out due diligence:

Review the company's financial, legal and tax documents to identify risks.

2. choice of model (asset deal or share deal):

Decide which model is best suited to your objectives. Both models have different legal, tax and liability implications.

3. make contractual arrangements:

Make sure that liability issues, warranties for defects and the transfer of assets are clearly and unambiguously regulated in the contract.

4. secure financing:

Plan how the purchase is to be financed - whether through equity, bank loans or other financing instruments.

Buying a company is a complex but potentially very lucrative step. With the right planning and legal support, the opportunities of a purchase can be maximized and the risks minimized. It is advisable to consult experts at an early stage in order to make the purchase legally secure and successful.

Summary in questions and answers: