Legal and tax advice on the purchase and sale of businesses

Company acquisitions and disposals present a major challenge for everyone involved. It usually takes several gruelling months before the business is finally transferred. The process should therefore be set in motion at an early stage. A legal safeguards is on its way out company law, tax law and often also from essential from an inheritance law perspective. We’d be happy to take care of this for you.

We provide comprehensive support – both nationally and internationally – for company acquisitions and disposals in all legal matters. A highly specialised team of solicitors, specialist solicitors and tax advisers, specialising in company law, inheritance law and tax law, is committed to ensuring that you secure the best possible deal.

Here is an overview of what to expect when buying or selling a business:

Due diligence and data room – preparatory work for the seller, review work for the buyer

Before a buyer makes a decision to purchase, they want to know exactly what they are buying and therefore carry out due diligence – that is, a review of the company’s financial, operational, technical, legal and tax affairs. The scope of the due diligence process depends heavily on the company being acquired and the transaction value.

From the seller’s perspective, the task is to prepare for the due diligence process. Financial data and contracts must be organised, scanned and compiled into a folder structure – known as the „data room“.

Ultimately, a well-structured data room is the calling card of the company being sold. Furthermore, a comprehensive presentation of the company within the data room can significantly minimise the seller’s liability risks.

Preparing the data room involves a considerable amount of work, which must be managed alongside day-to-day operations. Unfortunately, the time required for this is often underestimated. This is because it is not uncommon for a sale process to need to be kept secret from the workforce, meaning that delegating this laborious task to staff is not an option. You should therefore start preparing the data room as early as possible. Here We have provided some guidelines and a folder structure available for free download.

Term sheet, Letter of Intent

A corporate transaction is initiated by a memorandum of understanding – also known as a termsheet or letter of intent. In this document, the buyer and seller set out the key terms of the proposed transaction. This letter of intent is not legally binding, but it does place the parties under a moral obligation during the subsequent negotiation of the actual contract.

As the letter of intent lays the groundwork for the subsequent transaction documents, you should have it reviewed from a legal perspective. This is because it is not so easy to renegotiate a point that has already been conceded in the letter of intent during subsequent contract negotiations – and it will most likely require a concession on another point in return.

Contract of Sale

At the heart of the sale or acquisition of a company lies the purchase agreement and its accompanying documents. This is where the structure of the proposed transaction is set out – in particular, whether shares in the company (a ‘share deal’) or all of the company’s assets (an ‘asset deal’) are being sold.

It has now become standard practice for a company purchase agreement to contain an exhaustive list of warranties and grounds for liability. This is where the conflicting interests of the buyer and seller come into play. Lacking in-depth knowledge of the business, the buyer is keen to ensure that the warranties and liabilities are as comprehensive as possible. The seller, on the other hand, naturally wishes to keep any residual liability arising from the transaction to a minimum. Fortunately, there are several mechanisms available to reconcile these differing interests. For example, liability limitations can be negotiated in terms of their total amount or duration – or provisions regarding knowledge of matters, right through to so-called earn-out arrangements and various other options.

Tax considerations

For both the seller and the buyer, the business transfer should be structured from a tax perspective in order to take advantage of tax benefits or to avoid situations that could result in tax disadvantages.

For the seller, the options are, by their very nature, somewhat more limited. However, it is still worth exploring the tax options here:

Provided the legal requirements are met, the tax rate on a capital gain may, for example, be reduced; however, this benefit can only be claimed once in a lifetime. Another option is a reduction in the progressive tax rate for so-called extraordinary income, which generally includes the proceeds from the sale of a business. In the best-case scenario, with appropriate planning, the basic allowance – currently €8,652 – can be utilised up to 30 times. Although this is likely to be the exception rather than the rule, there are nevertheless a wide range of options available to significantly reduce the tax liability on capital gains.

The purchaser of a business has far greater scope to structure the acquisition in order to secure tax advantages or avoid disadvantages. In particular, it is important to clarify whether the business is to be acquired via a holding structure and under which legal form the business is to continue. The tax-optimised transaction structure depends very much on the buyer’s existing structure. Let us advise you.