Company Acquisition and the Role of the Notary

Types of Company Acquisitions

Companies may be acquired either by way of an asset deal or a share deal.

These transaction structures differ significantly:

• Asset Deal: In an asset deal, the buyer acquires individual assets of the business. This means that each asset—such as machinery, inventory or intellectual property—is transferred separately. Liabilities are generally not assumed unless expressly agreed. Existing contracts can only be transferred with the consent of the respective contractual partner.
• Share Deal In a share deal, the buyer acquires the shares in the company. As a result, the legal entity itself is transferred, including its assets, liabilities and existing contractual relationships.

In practice, company acquisitions are predominantly structured as share deals, as they are generally easier to implement and allow contracts to continue without interruption. Asset deals are typically used in restructuring or insolvency scenarios.

Is a Notary Required for a Company Acquisition?

In specific circumstances, a company acquisition must be conducted with the involvement of a notary. The requirement for notarial participation depends on the nature of the company and the manner in which the transaction is structured.

Notarisation is mandatory in the following cases:

• Transfer of Real Estate: In an asset deal, the purchase agreement must be notarised if the transaction includes real estate. The notarisation requirement applies to the entire agreement, not only to the provisions relating to the real estate transfer, in accordance with the principle of completeness under Section 311b (1) German Civil Code (BGB).
• Transfer of GmbH Shares: Where shares in a German limited liability company (GmbH) are transferred, notarisation is always mandatory pursuant to Section 15 (3) and (4) of the German Limited Liability Companies Act (GmbHG).
• Catch-All Clauses: In an asset deal, the challenge lies in ensuring that the purchase agreement covers each individual asset. Consequently, there is a risk that certain assets may be inadvertently omitted and therefore not acquired by the buyer. Where the intention is to sell the business as a whole, so-called “catch-all clauses” are sometimes agreed. Such clauses provide that all assets are transferred in their entirety. A clause of this kind obliges the seller to transfer its entire assets. An agreement containing such a provision likewise requires notarisation pursuant to Section 311b (3) of the German Civil Code (BGB).
• Corporate Transformations: Where the sale of a company is combined with a corporate transformation, such as a merger, notarisation may be required. By way of example, a merger requires the notarisation of the merger agreement pursuant to Section 6 of the German Transformation Act (UmwG).

If the company acquisition is not subject to a statutory notarisation requirement, notarial certification is still frequently necessary for registration with the Commercial Register, for example in connection with the transfer of interests in a limited partnership.

Even in cases where notarisation is not required by law, there are sound reasons for choosing notarisation in a company acquisition:

• Transfer of Real Estate: Where a company is sold by way of an asset deal, notarisation of the purchase agreement is required if at least one item of real estate is included in the transaction. In such cases, the notarisation requirement applies to the entire purchase agreement and is not limited to the provisions governing the transfer of the real estate. This follows from the principle of completeness pursuant to Section 311b (1) of the German Civil Code (BGB).
• Legal Certainty: Notarisation includes a comprehensive legal review of the agreement by the notary, ensuring that the agreement is legally valid and enforceable.
• Evidentiary Value: Notarised agreements carry increased evidentiary weight, thereby providing a substantially stronger evidentiary basis in the event of subsequent legal disputes.

Allocation of Notary Fees

In company acquisition agreements, the parties customarily agree on the allocation of notary fees, with the buyer typically bearing such costs.

The level of notary fees varies depending on the nature of the notarial services provided, the value of the company and the number and type of agreements requiring notarisation or certification.

How Does a Company Acquisition Work?

The process of acquiring a company varies from transaction to transaction. In principle, the transaction begins with initial contact between the buyer and the seller. This initial approach may be initiated by either party. In larger transactions, external advisers—particularly investment banks—are often engaged to facilitate the initial contact. Following this initial approach, the sale process commences:

• Letter of Intent: Following the initial exchange, a letter of intent is prepared. By means of the letter of intent, the prospective buyer expresses its interest in acquiring the company. Frequently, the letter of intent already outlines the key commercial parameters of the transaction, such as the purchase price. From a legal perspective, a letter of intent does not generally create binding obligations; it merely constitutes a declaration of intent.
• Due Diligence: Before the buyer acquires the company, the company is subject to a thorough review (so-called due diligence). The purpose of the due diligence process is to enable the buyer to identify potential risks in advance and to gain a clear and comprehensive understanding of the business being acquired. During the due diligence process, various legal issues may arise. A key challenge for the seller is to strike a balance between safeguarding business secrets and providing the buyer with sufficiently comprehensive insight into the company.
• Contract Negotiations: After the buyer has gained comprehensive insight into the company, the parties proceed to the final negotiations of the transaction documents. The negotiations ideally culminate in the execution of the purchase agreement (the “signing”).
• Registration and Filing: Following the execution of the purchase agreement, the transaction is implemented (so-called closing). At this stage, the shares are transferred, the purchase price is paid and, in the case of larger transactions, certain governmental approvals may be required, for example from the German Federal Cartel Office.