When selling a business, the central question is: Should the company shares or individual assets be sold? The answer has significant tax consequences.
The Fundamental Decision in a Business Sale
Anyone wishing to sell or acquire a business faces a fundamental choice: Share Deal or Asset Deal? This decision affects not only the purchase price but has far-reaching tax, liability, and employment law consequences.
Share Deal: Acquisition of Company Shares
In a Share Deal, the buyer acquires the shares in the company. The company as a legal entity remains unchanged; only the ownership structure changes.
Advantages of the Share Deal
- For the seller: Gains from the disposal of shares in a corporation can be 95 per cent tax-exempt under § 8b Abs. 2 KStG if the seller is also a corporation. Individuals benefit from the partial income method under § 3 Nr. 40 EStG.
- Contractual continuity: Existing contracts, permits, and licences generally remain in place.
- Simpler execution: The transfer of shares is effected by a notarised assignment agreement pursuant to § 15 GmbHG.
Risks of the Share Deal
The buyer assumes the company with all legacy liabilities and risks. A thorough due diligence is therefore essential. In addition, the buyer does not obtain any tax-deductible depreciation potential on the purchase price.
Asset Deal: Acquisition of Individual Assets
In an Asset Deal, the individual assets and contracts of the business are transferred. The buyer can selectively choose which assets to acquire.
Advantages of the Asset Deal
- For the buyer: The purchase price can be allocated to the acquired assets and depreciated for tax purposes. This results in substantial tax savings in subsequent years.
- Selective acquisition: The buyer can exclude unwanted liabilities and risks.
- No legacy risk: In principle, no unknown liabilities are assumed (with the exception of liability under § 25 HGB in cases of business name continuation).
Disadvantages of the Asset Deal
- For the seller: Disposal gains are subject to regular taxation at the company level and again at shareholder level upon distribution.
- Contract transfers: Contracts must be transferred individually with the consent of the contracting parties.
- Employment law: § 613a BGB applies, meaning employment relationships automatically transfer to the acquirer.
Tax Comparison
The tax interests of buyer and seller typically conflict with each other:
The seller prefers the Share Deal due to the more favourable taxation of the disposal gain. The buyer frequently prefers the Asset Deal because of the depreciation potential.
In practice, this conflict of interest often leads to purchase price negotiations in which the tax advantage of one party is offset by an adjusted purchase price.
Structuring Options in Practice
Practice offers numerous structuring options that can mitigate the disadvantages of both models:
- Combination of both models: Parts of the business are transferred as a Share Deal, others as an Asset Deal.
- Step-up models: Corporate restructurings prior to the sale can achieve a tax-optimised result.
- Earn-out clauses: Variable purchase price components can be structured in a tax-advantageous manner.
Recommendation
The choice between a Share Deal and an Asset Deal requires a careful analysis of the individual situation, taking into account tax, legal, and economic aspects. Early involvement of a lawyer and tax adviser is essential to find the optimal transaction structure.
