In the business world, company purchases are the order of the day. It must be noted here that every company purchase poses special challenges for the participants. First of all, it is always necessary to decide whether the company purchase should be made as a share deal or as an asset deal (purchase of the individual assets). Both variants have advantages and disadvantages under civil and tax law. The decision which variant fits the individual case must therefore be decided on the basis of the respective requirements. The following article represents important contents of a company purchase agreement designed as a share deal, without claiming to be complete.

A share deal is a company purchase if the object of purchase is the (business) shares in the acquired company. Shares, GmbH or UG (limited liability) shares as well as shares in partnerships can represent possible purchase objects. Accordingly, instead of the company to be acquired, its shareholders act as sellers. Therefore, one cannot acquire a sole proprietorship through a share deal because of these conditions. As a direct consequence of this transfer of shares, the acquirer becomes a member of the acquiree. This option of acquiring a company eliminates the need to transfer individual assets of the company concerned. Rather, the company remains completely intact, especially including all balance sheet assets and liabilities. Depending on the legal form of the company to be acquired, certain formal requirements must be observed for the company sales contract. This applies in particular to the purchase of shares in a GmbH or UG (limited liability); See § 15 paragraph 4 GmbHG (notarisation).

In practice, the conclusion of a share deal is usually preceded by various preparatory steps. Their number and scope depends above all on the size of the company to be acquired and the ideas of the interested parties. In addition to the letter of intent, the “due diligence” is a conscientious preparation for a company purchase. Due diligence is a detailed examination of the company to be acquired for financial, legal, economic and operational risks. This examination is usually carried out by knowledgeable external consultants. After the examination, the results are summarised in a due diligence report, which serves as a basis for the further procedure and the subsequent contract negotiations.

2 Necessary contract contents in the company purchase contract

Every contract has certain components, without which it has no effect. Such elements of the contract are referred to by lawyers as “essentialia negotii”. These necessary contractual elements are the contracting parties for the company purchase contract, the object of purchase and the purchase price. Therefore, regulations in this regard are mandatory in every business purchase contract.

2.1 The Parties shall:

The contracting parties are, of course, buyers and sellers. However, in addition to the precise designation of the parties in the contract itself, in particular in the context of concluding a contract with a company as a contractual partner, attention must be paid to the legally valid representative power of the persons acting on behalf of the company. A contract concluded without representation is only legally valid if it is approved by the unavoidably represented (natural or legal) person.

2.2. The object of purchase

As already explained, the shares in the company to be acquired are to be included in the company purchase agreement as a purchase object within the framework of share deals. As with the contracting parties, this seemingly simple indication must ensure that the shares are sufficiently determined. Therefore, it is always recommended to use all available clarification options (e.g. numbering, shareholder list). Although the share deal is usually easier to execute compared to an asset deal, since the company to be acquired remains intact, attention should be paid to details. Thus, existing contracts (e.g. lease contract, lease contract, lease contract, delivery contract, etc.) of the company to be acquired continue in principle in a share deal. However, in practice there are often clauses that allow the contractual partner of the company to terminate contracts as soon as the majority of voting rights in the company are transferred to other persons ("Change of Control"). Such risks to be detected by due diligence should be dealt with appropriately in the drafting of contracts.

2.3. The purchase price

Furthermore, the purchase price for the company must also be determined in the company purchase agreement. This does not always have to be agreed as a fixed price, but can in principle also be variable. Among other things, the purchase price can be made dependent on the future success of the company to be acquired. However, it should always be taken into account that the purchase price must remain sufficiently determinable. This can be achieved, for example, by precisely specifying relevant evaluation factors. Likewise, the basics for determining the purchase price should also be contained in detail in the company purchase agreement (for example, concrete balance sheet, profit calculation, etc.).

Although the following contractual contents are not necessary for the legal validity of the company sales contract, they are normally at least as important for the contracting parties. Therefore, business purchase contracts should regularly also contain the contractual clauses presented below. The specific content of the clauses must be based on the circumstances of the individual case. Likewise, in addition to the following contract contents, many other contract draftings are conceivable and necessary depending on the individual case.

3.1. Business Purchase Contract: Warranty / Liability

In principle, the statutory warranty law of German sales law also applies to company purchase contracts (§§ 433 ff. BGB). However, the legal regulations there are largely inappropriate for the special circumstances of a company purchase. In particular, the statutory requirement of subsequent fulfillment is regularly not possible for company purchases and the reversal of the entire contract is usually neither intentional nor practical. Therefore, in most cases it makes sense to exclude the legal warranty rights in a company purchase agreement as far as possible. Instead of the rights provided for by law, the parties can agree on independent contractual guarantees of the seller. It is very important here that both the guarantee agreements and the corresponding legal consequences in the event of breaches of the guarantees are as precise as possible. In this way, subsequent litigation can be avoided and the parties enjoy the greatest possible legal certainty.

3.2. Business Purchase Contract: Non-Competition

The contracting parties should also regularly agree on the inclusion of a non-compete clause in the company sales contract. In particular, in cases where the vendor himself is an active entrepreneur in the company to be acquired, there is in principle the possibility that in the future the vendor will become a competitor for the company to be acquired due to his particular skills, experience and/or strong contact network. This risk can at least be limited by agreeing on a non-compete clause to the detriment of the vendor. In principle, such a contractual clause can be effectively agreed in terms of factual, temporal and spatial aspects, but care must be taken that the scope of the restrictions is not too excessive. Otherwise, there is a risk that the non-compete clause will not have legal effect.

3.3. Business Purchase Contract: Existing Liabilities

Furthermore, it should in principle be contractually agreed who already bears liabilities invested at the conclusion of the contract, if they become due in the future. This may concern, for example, cases of liability of the company to be acquired from the period before the company purchase. The same applies to duties and taxes payable.