Civil Code (BGB) regulates rights and obligations from existing working conditions at the time of a business’s transfer and offers the legal basis for common forms of business transfer: acquisition and sale, the gift and the inheritance.
The Commercial Code provides the statutory basis for the legal form of a single enterprise operating as either a general partnership (OHG) or limited partnership (KG). It also regulates any possible differences in liability in relation to commitments outstanding between businesses during takeovers.
The Limited Companies Act (GmbHG) specifically regulates the legal particularities of ‘limited liability companies’ (GmbH).
The Stock Corporation Act (AktG) specifically regulates the particularities of takeovers involving ‘public limited companies’ (AG).
Tax questions are also relevant to business transfers. The tax regulations on the acquisition of business assets upon death or as a gift are governed in the Inheritance and Gift Tax Act (ErbStG).
A change of legal form may potentially offer tax benefits. As well as tax optimisation, other factors also influence the choice of legal form, e.g. liability issues, acquisition finance, and suitability for a gradual succession.
Types of business transfer
There are various legal possibilities for taking over a business:
The gradual transfer of the business over to the new owner can, if transfered within the family, potentially offer tax benefits. A succession outside the family can offer tax benefits as well as liquidity gains.
Business transfers: a step-by-step guide
Preparing the business
An adequate time frame should be planned for the transfer so that businesses and owners can prepare the succession.
All entrepreneurs must also ensure that they have contingency plans for unforeseen circumstances, e.g. illness or accident. Contingency plans for unforeseeable succession events are also honoured by banks and building societies.
Finding the right takeover partner
Regardless of whether the desired succession is to take place within or outside a family, the search for a successor should be based on an objective profile of requirements. Here commercial, professional and social skills all play a part.
During searches for suitable candidates, succession exchange platforms can bring together parties looking either to take over or transfer a business. These exchanges describe businesses up for transfer without identifying them, and can also list takeover requests.
Analysing the business
Many company break-ups following takeovers are attributable to an excessive acquisition price. Similarly, takeover talks often fail on account of differing views of a business’s true value.
Formal conclusion of transfer of ownership
Practical aspects in the run-up to any such transfer include the specific measures governing the chosen form of takeover (within or outside the family) and its legal form.
Features apply in particular based on specifications to the ensuing liability and tax obligations (e.g. inheritance or gift tax, insurance, borrowings) and with regard to the actual arrangements for the transfer. The transfer of ownership itself can be preceded by both parties recording their intentions in writing (Memorandum of Understanding or Letter of Intent).
Announcing the takeover.
Both the business’s previous and new owners are obliged to inform all staff affected by the transfer of the timing and reasons for it, along with information on its legal, economic and social repercussions (§ 613a BGB).
Under a legal reform in early 2009, new tax arrangements were brought in to govern ‘inheritance’ business transfers. The new rules offer a (part) exemption from inheritance tax under certain preconditions (Coalition Agreement, § 13a ErbStG).
Taking over an existing company is a worthwhile alternative to setting up a new business.
Business transfer procedures
Registering the business
‘Transfers’ of sole partnerships generally call for local de-registration with the local authority. Since there are no standard forms for this throughout Germany, the required forms are normally available for download on the website of the relevant local authority.
The relevant tax office can help in individual cases to clarify whether the transfer must directly adhere to tax office procedures. It generally makes sense to (informally) notify the tax office promptly of any changes to a business’s status as this will allow the office to take note of the changes and possibly arrange the necessary formalities.
Employment of staff
If a business is transferred with its staff, so the transfer should be notified - for reasons such as liability - to the central business registration service of the Federal Employment Agency in order to allow it to cancel the former business’s registration.
Where the previous business registration is retained, staff of the old company must be (formally) de-registered from social security within six weeks of the transfer through the relevant health insurance fund. The successor re-registers the workers for social security by specifying the business’s new registration. De-registration and registration take place electronically using officially licensed, dedicated software.
Since 1 January 2009 a new `fast-track registration obligation´ has been applied to business sectors in which experience has shown illicit working and illegal employment to be particularly widespread. Fast-track registration in the listed sectors must be done no later than by when employment starts. The next wage slip is the normal way of registering, in place of fast-track registration.
The health insurance fund will notify the German pension insurance scheme of the business’s transfer. If the previous business registration has been cancelled, the pension insurance scheme will usually conduct a company audit within three months, during which time relevant documents and information must be kept ready for scrutiny.
The transfer of a commercial enterprise must also be notified within four weeks to the relevant local employers’ liability insurance association.
Procedures specific to the legal form
If the business to be transferred needs to be listed in the commercial register, then depending on the individual case, other procedures involving a notary may have to be conducted with the relevant district court.
Industry-specific approval procedures
For activities that require a licence, the licensing body can ask for the individual licensing certificate to be returned.