Mergers and Acquisitions: A Global Tax Guide

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The transfer of contractual relationships or liabilities in an asset sale generally requires the consent of the other contracting parties or creditors to be valid. Share sales 8. What common conditions precedent are typically included in a share sale agreement? Foreign investment control clearance by the Ministry of Economics and Technology see Question 2.

Less commonly, and depending on the specifics of the transaction, there may be additional closing conditions for example, completion of certain carve-out measures. Material adverse change MAC clauses or buyer-related conditions precedent such as board approvals or secured financing are often not accepted by sellers in the German market. Seller's title and liability 9. Are there any terms implied by law as to the seller's title to the shares in a share sale?

Is any specific wording necessary and do buyers normally impose a higher standard than is implied by law? Under German statutory law, the seller must transfer the full legal title to the shares to the purchaser, free of any material or legal defects. The aim of a share purchase agreement in a share sale is usually to specify these statutory provisions and create a separate liability regime between the seller and purchaser excluding statutory liability to the extent possible. Therefore, there is usually wording to ensure that the:. Seller is the sole owner of the shares and not subject to any restrictions in respect of the sale or assignment of the shares.

Shares are free of any encumbrances or other third party rights and that no third party has any right or claim to be granted such rights or demand assignment of any shares for example, pre-emptive rights or options. Shares are fully paid in, freely negotiable or transferable, and free of any additional payment obligations. Can a seller and its advisers be liable for pre-contractual misrepresentation, misleading statements or similar matters? Seller The legal concept of culpa in contrahendo "fault in conclusion of a contract" provides for a statutory liability for pre-contractual misleading statements, the violation of information duties and similar matters.

However, a seller will usually exclude this liability in the share purchase agreement with the purchaser.

Corporate entities and acquisition methods

Culpa in contrahendo is relevant to:. Cases where the liability cannot be excluded for example for wilful intent. A relationship with third parties with whom there is no contract for example, unsuccessful bidders in an auction process. In addition, culpable or negligent conduct of the adviser may be imputed to the seller, enabling the buyer to bring an action against the seller. Main documents What are the main documents in an acquisition and who generally prepares the first draft? In a share sale, the main document is the share purchase agreement.

In most cases, especially in an auction process, the first draft is prepared by the seller. If the acquisition relates to the shares in a limited liability company GmbH , the share purchase agreement must be notarised. In principle, this requirement also applies to related agreements between the parties to the share purchase agreement.

If the purchaser is a private equity sponsor using a special purpose vehicle without significant financial resources as the purchasing entity for the acquisition, sellers often ask for an equity commitment letter. If the seller reinvests or in case of a consortium of bidders, a shareholders' agreement is regularly signed and notarised together with the share purchase agreement.

In an asset sale, the main document is the asset purchase agreement, which is generally also drafted by the seller in the first instance. Acquisition agreements What are the main substantive clauses in an acquisition agreement? The main provisions of a share acquisition agreement are the:. Sale and assignment of the shares and company law status object of purchase and the effective date.

Treatment of intra-group payables and intra-group receivables, if applicable.

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Purchase price and, if applicable, adjustment mechanism. Closing conditions, period between signing and closing, and closing actions. Legal consequences and limitations of liability, that is:. Indemnities such as tax and environment , if applicable. Public announcements and confidentiality.

The main provisions of an asset acquisition agreement that differ from a share acquisition agreement are:. Sale and transfer of assets and liabilities object of purchase :. Specification of liabilities and the contractual relationships including provisions on related consent requirements to be assumed by the purchaser. Provisions related to the transferring employees see Questions Question 31 , Question 32 and Question 33 and other contractual relationships and the use of the company name. Specification of operations, assets, liabilities and contractual relations that are excluded and remain with the seller.

The main difference between share and asset acquisition agreements results from the different object of purchase Kaufgegenstand. In an asset sale, all the individual assets to be sold and transferred to the purchaser must be specified see Question 3. Therefore, the asset acquisition agreement and the corresponding schedules set out in detail which tangible and intangible assets, liabilities and so on are transferred and which assets remain with the seller. Can a share purchase agreement provide for a foreign governing law?

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If so, are there any provisions of national law that would still automatically apply? Although not advisable for practical reasons, it is possible to choose a foreign law to govern the rights and obligations of the parties to a share purchase agreement. This must be distinguished from the transfer in rem of the shares. From a German law perspective, due to mandatory conflict-of-law provisions, the transfer of the shares of a corporate entity such as a limited liability company is regulated by the law to which the entity itself is subject, that is, the company law regime Gesellschaftsstatut.

In case of a German entity, this means German law is mandatory and it is not possible to derogate from it. Warranties and indemnities The areas and the extent of warranties and indemnities in acquisition agreements depend on the negotiating position of the seller and purchaser. The seller's warranties and indemnities available to the purchaser may be very limited, especially in a competitive auction process. Typical fundamental warranties that can also be found in competitive situations are:. Seller's capacity. Corporate status of the target company.

Legal situation and ownership of the shares. Business warranties that may be used to a limited extent in competitive situations can include the following areas:. Financial statements. IP rights, know-how and information technology. In addition to special indemnities for particular issues discovered in the due diligence, indemnities are used to cover known risks in the following areas:.

Taxes and connected expenses relating to periods on or before the effective date or in relation to events which occurred on or before closing as a counterpart to the indemnity, the purchaser must often reimburse the seller for any tax refunds or tax allowances relating to these periods.

Environmental matters see Question This is often helpful to bridge the gap between the seller's interest in limiting its exposure and achieving a clean exit, and the protection and recourse requirements of the purchaser. What are the main limitations on warranties? Limitations on warranties The limitations on warranties in particular thresholds and caps are often controversial and depend on the negotiation position of the parties. Certain fundamental warranties and tax are frequently carved out from the general and time limitations, or subject to specific limitations for example, a specific cap amounting to the purchase price.

A typical structural limitation on the warranties in a share purchase agreement results from the point in time as of the signing date or as of the closing date to which the warranty statements are linked. Additionally, certain warranty statements are qualified by "seller's knowledge", meaning that these statements only apply to what the relevant person, that is, the seller or in some cases also other persons whose knowledge is imputed to the seller, knows related discussions often turn on what is deemed to be "known". Further limitations can result from:.

The definition of losses and damages to be compensated by the seller indirect damages or lost profits are often excluded. Provisions on the conduct of claims some share purchase agreements contain provisions excluding liability if the purchaser has failed to notify the seller of a warranty claim within a certain period of time as set out in the share purchase agreement. If the matter giving rise to the claim has been taken into account in the financial statements. If the buyer contributed to, worsened or failed to reduce the damage. Exclusion of double-dipping in respect of the same breach.

Potential recoverability from third parties or insurance. De minimis thresholds meaning that only claims exceeding a certain amount can be made against the seller around 0. When the amount is exceeded the purchaser can fully tipping basket or partially excess amounts only, in case of a deductible recover. See Question Qualifying warranties by disclosure Under statutory law, the purchaser cannot claim against the seller if it has positive knowledge of the defect in the object of purchase underlying his claim paragraph , Civil Code.

If the purchaser has no knowledge of the defect and this lack of knowledge is due to gross negligence, the seller is only liable for wilful misrepresentation or if it has granted a specific warranty for the object of purchase. This concept is specified by most purchase agreements. However, a purchaser in a strong negotiating position may succeed to negotiate that the purchaser's knowledge does not exclude or limit the seller's liability.

The following facts are frequently deemed to be known by the purchaser or persons whose knowledge is imputed to the purchaser, for example, its advisers or other representatives :. Matters disclosed in the share purchase agreement or a separate warranties agreement. Matters disclosed to the purchaser during management meetings. Information which is publicly available for example, through research in the Commercial Register. What are the remedies for breach of a warranty?

What are the time limits for bringing claims under warranties? Remedies The seller is usually given the opportunity to factually remedy a breach for a limited period of time for example, four weeks. If the seller fails, or is unable or unwilling to factually remedy the breach within that timeframe, the purchaser is entitled to monetary damages. Statutory legal consequences are typically excluded to the extent possible such as the right to rescission Anfechtung or claims for culpa in contrahendo see Question Time limits for claims under warranties Typical time limits for warranty claims in the current market are:.

Between three and five years for fundamental warranties see Question Between one and two years for business warranties see Question Consideration and acquisition financing What forms of consideration are commonly offered in a share sale? Forms of consideration The most common form of consideration is cash or cash equivalents such as shares.

Singapore Mergers and Acquisition (M&A) Incentive Scheme - Guide

Share-by-share transfers are generally taxable, but reinvestments can be structured tax neutrally. Deferred consideration is sometimes chosen, for example, through a vendor loan or earn-outs. Factors in choice of consideration As a general rule, cash has the advantage that the seller has certainty about what it receives and immediately available liquid funds. Shares enable the seller to further participate in the development of the target or, as the case may be, the purchaser, while the purchaser can reduce the cash amount that needs to be funded and reach an alignment with the seller for example, in the event of a management reinvestment.

The repayment amount of a vendor loan is not immediately available in cash to the seller and carries limited returns due to the current low interest rates. If a buyer listed in your jurisdiction raises cash to fund an acquisition by an issue of shares, how is the issue typically structured? What consents and regulatory approvals are likely to be required? Structure Structure and requirements of an issue of shares depend on the type of the corporate entity increasing its capital. If cash is raised on public capital markets, bridge financing is often used. Consents and approvals The capital increase and corresponding change to the articles see above, Structure only become valid on registration in the Commercial Register.

The application for registration must be signed by all managing directors. Several additional documents are required, including a:. Declaration of assumption of the newly issued shares. List of acquirers of the newly issued shares. In cases of a contribution in kind, a contribution contract and report confirming the value of the contributed assets is required. Requirements for a prospectus A prospectus is only required if a listed stock corporation issues new shares:.

With subscription rights for its shareholders or by any other form of public offering.

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A prospectus is not required for a capital increase by a GmbH, as such shares are normally not offered publicly. Can a company give financial assistance to a potential buyer of shares in that company? Restrictions Stock corporations AGs. Generally, AGs are directly prohibited from giving financial assistance to a potential buyer of their shares.

In the case of an AG such provision of financial assistance would be void. Limited liability companies GmbHs. GmbHs are restricted by the rules on capital contributions and capital maintenance from giving financial assistance to a potential buyer of their shares. The respective funds would have to be reimbursed to the GmbH and the managing director s can be liable for damages caused by the payments. Aside from the company itself, and although rare in the current market in Germany, there are situations where a seller may be willing to give financial assistance to the purchaser, for example through mechanisms deferring the payment of the purchase price or by granting a vendor loan.

However, debt push-downs are permitted and various tax-driven implementation mechanisms exist. Exemptions AGs. The exceptions for AGs apply to:. Credit institutions or financial institutions trading their own shares. AGs selling shares to their own employees or to employees of affiliated companies.

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  • Certain transactions in the context of group companies having concluded enterprise agreements such as a domination and profit and loss transfer agreement under the Stock Corporation Act. This article will explain the benefits of the scheme and the conditions that companies must fulfill to avail these benefits.

    The scheme is applicable to Singapore registered companies that acquire the ordinary shares of a target company either directly or through a wholly-owned subsidiary subject to qualifying conditions. However, the scheme is now extended until March 31, and the government has recently made enhancements to it. The current scheme is explained below. As stated by the Inland Revenue Authority of Singapore IRAS , the allowance is allowed over a five-year period on a straight-line basis which is explained here.

    The relief is granted on any contract, agreement or transfer documents pertaining to the acquisition of the ordinary shares in the target company. These transaction costs include legal fees, professional fees, valuation fees, etc. To claim the deduction, the acquisition must be completed between February 17, to March 31, There are specific qualifying conditions for the acquiring company, the acquiring subsidiary, the target company and the share acquisition process as explained below:. Click here to sign up. All rights reserved.

    Mergers and acquisitions …[they] were professional yet approachable and explained the complexities of the legal jargon. Recent work highlights Sale of automotive spares distributor Working closely with the Camberley Auto Factors shareholders advising on the corporate tax, employment and property aspects of the sale of the company to Andrew Page Acquisitions Limited, a Leeds-based vehicle parts distributor.

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