Introduction: Asset Deal and Share Deal – What are they and how do they differ?
As an attorney specializing in corporate law, I often deal with various forms of business acquisitions. In practice, two forms are particularly common: the asset deal and the share deal. Both have their specific characteristics and use cases, and both bring their own legal challenges.
The asset deal is a form of company purchase in which the company’s assets, such as customer and supplier contracts, machinery and equipment or inventories, are sold individually. This allows the buyer to choose exactly which assets to acquire, and it allows the buyer to avoid certain liabilities of the company. However, an asset deal can be complex and time-consuming because each asset must be identified and valued, and the transfer of each asset often requires the consent of third parties.
This contrasts with the share deal, in which the company’s shares are sold. In a share deal, the buyer acquires the company as a whole, including all assets and liabilities. This is often simpler and faster than an asset deal, as there is no need to identify and value individual assets. However, the buyer also assumes all of the company’s existing liabilities, which can represent a significant risk.
During a conversation with a colleague, it became clear to me that the issue of notarization is often overlooked in asset deals, especially with regard to Section 311b para. 3 BGB. This paragraph is an exception to the general rule in asset deals that such a contract usually does not need to be notarized.
Legal basis and the necessity of notarial certification
The legal framework for notarization in the case of company acquisitions is anchored in the German Civil Code (BGB). In the context of a share deal, which involves the sale of business shares, the matter is quite clear. Pursuant to Section 15 (3) of the GmbH Act, notarization is essential. This means that the agreement on the assignment of shares by shareholders must be concluded in notarized form.
However, the situation with an asset deal is far more complex. In contrast to a share deal, in which the shares of a company change hands, an asset deal involves the sale of individual assets of the company. In this case, German law does not provide any clear guidance on the necessity of notarization of the purchase agreement. The reason for this is that in an asset deal, usually no business shares and often no real estate (or these separately) are sold. Therefore, the need for notarization is not always given and depends on the specific circumstances of each deal.
However, it is important to note that this does not mean that notarization is never required in an asset deal. There are certain situations and types of assets where notarization may be required.
Notarial certification according to § 311b para. 3 BGB
An important exception to the rule that an asset deal does not have to be notarized is set out in Section 311b (3) BGB. This paragraph comes into play when the asset deal involves all of the company’s current assets. In such cases where the sale includes the entire assets of the company, notarization of the sale and purchase agreement is required.
However, it is important to note that notarization is not required if the seller agrees exclusively to transfer certain individual items listed in the contract, even if these individual items should constitute the entire property. In this case, the seller has a clear idea of what he is transferring.
However, so-called “catch-all clauses” in company purchase agreements can be problematic. These clauses state that the seller sells not only the assets explicitly listed in the contract, but also all other assets that belong to the company but are not listed in the contract. The use of such clauses may result in the contract being considered as a transfer of the entire property and therefore having to be notarized.
Another interesting question arises when a company sells one of several business units it operates. In this case, it could be argued that the company has sold a fraction of its current assets. However, the requirement of notarization is only met if the seller has expressly agreed to transfer a quota or percentage of his assets. If the seller defines a particular line of business by a description of the business to be transferred rather than by a quota or percentage, the prevailing view is that there is no obligation to transfer a fraction of the assets, even if a catch-all clause was used.
In summary, Section 311b para. 3 BGB plays an important role in the drafting of company purchase agreements and helps to ensure legal certainty and protect the interests of the contracting parties. However, it is important to understand and consider the specific requirements of this section when drafting business purchase agreements.
Conclusion: Notarization – A Decisive Factor in Asset Deals
Notarization is an essential component of an asset deal that is often overlooked. It serves not only as a legal safeguard, but also as a protective mechanism for the parties involved. It ensures that all parties fully understand the implications of their decisions and that the contract complies with legal requirements.
The consequences of not notarizing where required by law can be significant. Such a legal transaction may be considered void, which means that it is considered non-existent. This may result in the transferor being able to demand the return of the transferred items.
In practice, it can often be challenging to assess whether an asset deal requires notarization. This blogpost therefore aims primarily to raise awareness of the importance of § 311b para. 3 BGB in the context of asset deals. It is an aspect that I believe is often overlooked, but is of critical importance to the legal certainty and successful completion of corporate acquisitions.
In summary, attention to the legal requirements of an asset deal is critical. A properly executed asset deal can be an effective way to acquire a company or parts of it. However, it is – once again 🙂 essential to pay attention to the legal details to avoid potential pitfalls.
