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.
The Commercial Code (HGB) provides the statutory basis for the legal form of a single enterprise, general partnership (OHG) and limited partnership (KG). It also regulates any possible differences in liability in relation to past liabilities 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 details of takeovers involving ‘stock corporations’ (public limited companies – ‘AG’ in German).
Tax questions are also relevant to business takeovers. 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).
If the successor already has a company, it can lead to mergers, fusions and reorganisations which are subject to reorganisation tax.
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.
Types of takeover
There are assorted legal possibilities for taking over a business:
A gradual transfer of the business over to the new owner through a family-internal takeover offers potential tax benefits. As well as offering tax benefits, succession outside the family can also bring liquidity gains.
Steps in the takeover process
Finding the right company
Here it is important to consider aspects like the sector in which the business operates, its size and location. When searching for a suitable company, 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 concerning a business’s true value.
Formal conclusion of transfer of ownership
Practical aspects include determining the legal structure and the resulting liabilities and taxes, such as inheritance or gift tax, as well as any insurance, tax obligations and liabilities, together with the actual form the transfer takes. The transfer of ownership itself can be preceded by both parties recording their intentions in a written (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.
Retiring business owners need to plan the transfer of their business in advance.
Some standard requirements to be completed when taking over a business are the same as when setting up a new business.
Registering the business
‘Transfers’ of sole proprietorships generally call for business registration with the local authority. The standard forms for this, used throughout Germany, are normally available for download on the website of the relevant local trade office.
The relevant tax office should be consulted concerning a specific single case, to determine whether a tax record sheet needs to be filled in or whether the takeover itself requires no immediate tax office procedures to be completed. 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.
If a business is transferred with its staff, then for reasons such as liability a new registration number should be ordered from the central business registration service of the Federal Employment Agency. The registration number may be issued informally within a few minutes, e.g. over the telephone, but it can also be requested in writing using the model form held on the web site below:
Using the new registration number, staff must be registered for social security within six weeks of the transfer through the relevant health insurance fund. De-registration takes place electronically using special, 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 transfer of a commercial enterprise must also be notified within four weeks to the objective and relevant local employers’ liability insurance association (Berufsgenossenschaft).
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, personal permits (e.g. restaurant licence, pharmacist’s licence, etc.) must be applied for from the relevant administrative authorities.
Germany has a dense network of approx. 220 one-stop shops, which provide both comprehensive advice on starting a business and consolidated and accelerated handling of the formalities associated with a start-up (e.g. by way of a business takeover).
The German one-stop shops generally have a digital form centre. Here, personal and business-related data only need to be entered once in a so-called meta-form. The digital form centre then completes the necessary individual forms automatically in a single step.