Selling on - Germany

Updated 10/2010

Legal requirements

The 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, gift and inheritance.

Civil Code
Buying and selling
Gift
Inheritance

The Commercial Code (HGB) provides the legal 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.

Commercial Code
General partnership
Limited partnership

The Limited Companies Act (GmbHG) specifically regulates the legal particularities of ‘limited liability companies’ (GmbH).

Limited Companies Act

The Stock Corporation Act (AktG) specifically regulates the particularities of takeovers involving ‘public limited companies’ (AG).

Stock Corporation Act

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).

Inheritance and Gift Tax Act
Gifts and inheritance

A change of legal form at the time of succession 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.

Legal form of a sole proprietorship
Legal form and taxation
Change of legal form

Types of business transfer

There are assorted legal possibilities for taking over a business:

Sale in the form of single payment, instalment or annuity payment
Inheritance from a will
Gift, including as a means of gradual succession
Lease, including as a means of gradual succession, with the transfer of ownership coming after the management handover
Endowment

A gradual transfer of the business over to the new owner offers potential tax benefits for takeovers within the family. Succession outside the family, as well as tax benefits, can also offer liquidity gains.

Progressive transfer through shareholding/setting-up of a partnership or corporation

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.

Checklist: preparing the transfer [104 KB]

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.

Contingencies: ‘emergency first-aid kit’

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 in which commercial, professional and social skills all play a part.

Checklist: finding a successor [99 KB]

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.

National succession exchange: nexxt-change

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.

Assessing a business’s true value
Step-by-step checklist: due diligence

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.

Summaries of the individual legal forms
Change of legal form

Specifications apply 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).

Checklist: purchase agreement
Checklist: lease agreement
Checklist: partnership agreement [106 KB]
Checklist: gift agreement [68 KB]
Checklist: instalment purchase [501 KB]
Checklist: making a will [470 KB]
Checklist: disputes between heirs [476 KB]
Checklist: demands from other possible heirs in the case of donation [501 KB]
Taxes and tax exemptions during a transfer

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 (Section 613a BGB).

The right communication during the process of succession
Rights and obligations when transferring a business

Incentives

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 (Section 13a ErbStG).

Tax exemption

Taking over an existing company is a worthwhile alternative to setting up a new business.

Takeovers — Germany

Administrative procedures

Business transfer procedures

Registering the business

‘Transfers’ of sole partnerships generally call for local de-registration. 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.

In individual cases, the relevant tax office can help 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.

Information and services offered by tax authorities in the federal states (Länder)

Employing staff

If a business is transferred with its staff, for reasons such as liability the transfer should be notified to the central business registration service of the Federal Employment Agency in order to allow it to cancel the former business’s registration.

Federal Employment Agency business registration service

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 then re-registers the workers for social security by specifying the business’s new registration. Registration and de-registration take place electronically using officially licensed, dedicated software.

Social security notification procedure

Since 1 January 2009 a new fast-track registration obligation has 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.

Fast-track registration procedure

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.

German pension insurance scheme: inspection offices

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.

Contact addresses for all District Courts in Germany

Industry-specific approval procedures

For activities that require a licence, the licensing body can ask for the individual licensing certificate to be returned.

Check also the legislation on this topic in:

Selling on - Germany