Asset Deal or Share Deal?

What is it?

In principle, a company can be acquired or sold either by acquiring or selling the entire assets individually or by the buyer acquiring all shares in the company. The latter is called a share deal. 

The so-called share deal is possible for all companies in which the share capital has been issued to the shareholders in the form of share certificates, e.g. for all corporations (public limited companies, limited liability companies) or also a limited partnership or other partnerships.

If only individual assets of the company are purchased, it is an asset deal. Since in an asset deal the individual assets are acquired directly, it can be carried out for any type of company. Whether the asset deal or the share deal is advantageous depends on many different factors. 

Which is recommended – asset or share deal?

Usually, the buyer prefers an asset deal. Especially if the company has substantial hidden reserves in depreciable fixed assets, the asset deal offers great advantages. This allows a correspondingly high depreciation potential to be created. The assets are valued at the purchase price and thus depreciated from the new, higher value. 

As a rule, the seller wants to carry out a share deal. This is due to the fact that the taxation of profits from the sale of shares in the corporation held as private assets, such as shares in a joint-stock company or a limited liability company, is taxed at a preferential rate in accordance with the so-called partial income procedure. Thus, 40 % of the proceeds from the sale are tax-free. If the shareholding in the corporation does not exceed 1%, the capital gains are subject to the final withholding tax. This amounts to 25 % (plus solidarity surcharge and church tax, if applicable). On the other hand, the sale of individual assets is subject to normal taxation.

Liability aspects

In the context of a company purchase, a buyer usually assumes all tax liabilities, if any. The asset deal reduces this liability. 

It is therefore generally advisable to carry out a so-called due diligence (careful examination) before buying a company, especially with regard to the tax aspects.

The following facts, among others, are examined within the framework of tax due diligence:

– Correct accounting of operating expenses and acquisition and production costs to be capitalized 

– Examination of reversals of impairment losses 

– Amount of accruals- Relationships with related parties and their arm’s length nature

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