Selling a GmbH in Germany

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  1. Inleiding
  2. How do you sell a GmbH?
    1. Sales strategy
    2. Preparation for the sale of the GmbH
    3. Company audit
    4. Purchase agreement
    5. Taxation on the sale of the GmbH
  3. What specifics apply when selling GmbH shares?
  4. Is it possible to sell an insolvent GmbH?
  5. Is it possible to sell an indebted GmbH?

Selling a GmbH can be a time-consuming and challenging process. In this article, we will explain how to sell a business successfully. We also will explain what specifics apply if the GmbH is not sold as a whole but only in shares. Finally, we’ll consider the options for selling insolvent or indebted businesses.

What’s in this article?

  • How do you sell a GmbH?
  • What specifics apply when selling GmbH shares?
  • Is it possible to sell an insolvent GmbH?
  • Is it possible to sell an indebted GmbH?

How do you sell a GmbH?

The sale of a limited liability company (GmbH) should be prepared and planned well. Although it is necessary to comply with many legal and tax aspects, a higher sales price can be achieved with thorough groundwork. Selling a GmbH can be accomplished in the following steps:

  • Sales strategy
  • Preparation for the sale of the GmbH
  • Company audit
  • Purchase agreement
  • Taxation on the sale of the GmbH

Sales strategy

Before the sale of the GmbH, the shareholders should ask some basic questions to develop their individual sales strategy. A central question: is the priority the maximum sale price, or the quickest possible sale with potential financial losses? In general, it is preferable not to have time constraints. However, the sale of a GmbH can stretch over several years, so speeding up the process may become desirable or necessary in certain cases.

During this process, potential buyers and their interests should always be taken into consideration. A broad distinction can be made between a financial and a strategic investment. Financial investors are generally interested in short-term returns and are looking to resell the GmbH at the highest possible profit. Strategic investors usually aim for longer-term engagement and wish to make use of synergy effects or valuable assets such as patents, licenses, or distribution channels.

To achieve optimum negotiation results, it is key for the sellers of a GmbH to know the motives of the buyers. The choice between financial and strategic investors depends ultimately on the sellers’ objectives. If it is important to you that your business is in “good hands” and is continued seriously in the long term, you should choose a strategic investment. If your priority is financial returns, you should go with the better offer regardless of how the GmbH will be developed in the future.

Preparation for the sale of the GmbH

Potential buyers are first approached with an anonymous brief profile of the GmbH. Anyone who indicates interest must guarantee confidentiality for further negotiations. During the sale process, the sellers disclose detailed information about their business, including to interested parties who do not ultimately purchase the GmbH. They must therefore ensure that trade and business secrets are secure and are not used inappropriately. To this end, the sellers draw up a nondisclosure agreement (NDA) which is signed by the other party at the start of negotiations.

In the next step, interested parties receive a detailed report containing the business’s important quantitative and qualitative data. This document should also be created by the seller with the utmost care. Since it ideally serves as a promotional brochure, it should not only be correct in terms of content, but it also should look attractive.

If the potential buyers continue to show interest, this will lead to more in-depth discussions. A third document will result from these discussions: the “letter of intent” (LOI). This declaration of intention to buy records important economic and legal points, including the intended purchase price. However, even if the LOI is signed by both parties, it is not legally binding.

Company audit

An extensive business or risk audit is then made by the buyers, as so-called due diligence. The sellers provide all fundamental legal, tax, and financial information for this in a digital data space. Technical and environmental aspects can also be part of the company audit. It is carried out on behalf of the potential buyers by specialized law firms, tax consultants, or auditors.

Among other things, it is particularly important to note whether the GmbH was founded properly, whether any capital increases and structural measures have proceeded without error, and whether there are any impending liability risks. The list of shareholders is also checked in detail, as well as whether there are any obstacles to the transaction under corporate or civil law. In general, maximum transparency is recommended to sellers, even in problem areas.

The due diligence period, including a fixed completion date, should be determined precisely beforehand. As a rule, the audit ends with a report that outlines the most important results and gives potential buyers a significant basis on which to make decisions.

Purchase agreement

The company purchase agreement is the core of the GmbH sale. Although each agreement is negotiated individually, there are certain points that are included as a rule:

  • Purchase price, payment terms, and any price adjustment clause
  • Guarantees or assurances on the basis of which the sellers assume financial risks
  • Limitations of liability for the benefit of the sellers
  • Staff arrangements for the transfer of operations
  • Clauses on tax and company audits
  • Regulations on antitrust law
  • Agreements on periods of limitation
  • Any restrictions on competition for sellers
  • Arbitration agreements

Errors can be very expensive for sellers in particular, which is why the purchase agreement absolutely must be checked from a legal point of view before signing. The sale of the GmbH is concluded when both parties have signed, but it does not yet take legal effect. If the GmbH is fully acquired, it results in a share deal, and a share transfer agreement must then be concluded. This must be notarized in accordance with Section 15 (4) GmbHG (German GmbH law). Only then can the sale be completed. In contrast to a share deal, an asset deal only has individual assets or goods transferred and not the GmbH shares. In this case, notarization is not necessary.

Taxation on the sale of the GmbH

The sellers must pay tax on their capital gains, regardless of whether it is a share deal or an asset deal. In the latter case, the GmbH acts as the seller, meaning that corporate and trade tax are payable on the capital gains. If it is a share deal, taxation is dependent on whether the sold shares are held as business or private assets.

For shares as part of private assets, a distinction is made between a small shareholding of less than 1% and a significant shareholding of 1% or more. Settlement tax of 25% is due on the capital gains of small shareholdings, plus solidarity surcharge and, if applicable, church tax. Capital gains on significant shareholdings are taxed according to the partial income method: 40% is tax-free and 60% of the capital gains is taxed at the individual tax rate—see Section 17 EstG (German income tax law). For sales of shares as part of business assets, the partial income method is also used.

What specifics apply when selling GmbH shares?

A GmbH need not be sold only as a whole—shares can also be sold. Provided that no provisions of the memorandum of association are violated, owners can sell their GmbH shares at any time (see Section 15 of the GmbHG). It is possible to sell both to third parties and to other shareholders. The latter might even have a right of first refusal set down in the memorandum of association.

A sale of shares is based on a realistic company valuation to determine the value of the GmbH as a whole and from there, to derive the value of individual shares. Analyzing profits and losses from past years and reviewing the GmbH’s capital, including all assets, can give insight into potential profits for future years. In principle, there are many possible evaluation procedures and parameters to approximate the business’s value. However, the figure derived is ultimately only a guideline and not necessarily the actual purchase price. This is determined by the interplay between supply and demand.

As with the sale of a GmbH as a whole, a company report, nondisclosure agreement, and LOI are then created. Potential buyers conduct a business or risk audit, and finally the purchase agreement is drawn up, signed, and notarized. So the processes for a sale of shares are not different from the processes for the sale of a whole GmbH. It is particularly important that the contents of the memorandum of association do not conflict with the sale.

Is it possible to sell an insolvent GmbH?

Even an insolvent GmbH can be sold, but only if the company has not yet been registered as insolvent and there are no arrears due to social security providers. Pursuant to Section 1 (1) of the Fourth Book of the German Social Code (SGB IV), these include the statutory health insurance (SGB V), social care insurance (SGB XI), statutory accident insurance (SGB VII), pension insurance (SGB VI), and unemployment insurance (SGB III).

If the sale leads to the rescue of the GmbH, the reputation of the original acting persons can be preserved. Furthermore, if a new managing director is appointed, the sellers will no longer be called on to fulfill claims for damages. The GmbH itself will benefit from solvency potentially being preserved with new owners. In the ideal circumstances, this prevents insolvency.

Is it possible to sell an indebted GmbH?

Even an indebted GmbH can be sold, provided that it has not been registered as insolvent. Since the sale includes all debts, the managing directors will be released from all resulting obligations, so they avoid any possible liability risks and claims for damages.

For more detailed information and articles about businesses and starting a business, visit the Stripe resources portal. If you are interested not just in selling, but also in purchasing a GmbH, we recommend our article on shelf companies. Plus, learn how to accept global payments and increase revenue with Stripe Payments. If you are looking for professional support for your financial processes, sign up with Stripe today.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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