Takeovers - Germany

Updated 10/2010

Legal requirements

The Civil Code (BGB) regulates rights and obligations from the contracts of employment in place at the time of handover and offers the legal basis for common forms of business transfer: acquisition and sale, gift and inheritance.

Civil Code (BGB)
Buying and selling
Gift
Inheritance

The Commercial Code (HGB) 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.

Commercial Code
General partnership (‘OGH’ in German)
Private limited partnership (‘KG’ in German);

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

Limited Companies Act (GmbHG) (Act on Limited Liability Companies) [123 KB]

The Stock Corporation Act (AktG) specifically regulates the details of takeovers involving ‘stock corporations’ (public limited companies – ‘AG’ in German).

Stock Corporation Act (Aktiengesetz – AktG)
Legal information on the start-up process

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).

Gifts and inheritance
Inheritance and Gift Tax Act (Erbschaftsteuer- und Schenkungsteuergesetz – ErbStG)

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 takeover

There are assorted legal possibilities for taking over a business:

Purchase 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

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

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

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.

National succession exchange: nexxt-change
nexxt

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.

Step-by-step checklist: due diligence
Assessing 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).

Checklist: purchase agreement [110 KB]
Checklist: disputes between heirs [476 KB]
Checklist: gift agreement [68 KB]
Checklist: demands from other possible heirs in the case of donation [501 KB]
Checklist: lease agreement [108 KB]
Checklist: partnership agreement [106 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.

The right communication during the process of succession
Rights and obligations when transferring a business (Section 613a BGB)

Retiring business owners need to plan the transfer of their business in advance.

Selling on — Germany

Some standard requirements to be completed when taking over a business are the same as when setting up a new business.

Start-ups — Germany

Administrative procedures

Registration

Registering the business

‘Transfers’ of sole proprietorships generally call for de-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 authority.

The relevant tax office should be consulted to determine whether a tax form 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.

Tax forms [491 KB]

Employing staff

If a business is transferred with its staff, then for reasons such as liability the transfer should be notified to 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:

Federal Employment Agency business registration service

Using the new registration number, staff must be registered for social security within six weeks of the transfer through the relevant health insurance fund. Registration and de-registration take place electronically using officially licensed, dedicated software.

Licensed software programs for social security registration and de-registration

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
Fast-track registration: FAQs

The transfer of a commercial enterprise must also be notified within four weeks to the 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.

Justice portal of the Federal Government and the Länder

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.

Registration and authorisation [369 KB]

One-stop shop

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).

One-stop shops in Germany

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.

Check also the legislation on this topic in:

Takeovers - Germany