Asset deal or share deal

Buyer and seller want opposite answers to this question, and the gap between them is quantifiable rather than a matter of preference. In Germany a seller holding through a corporate structure can walk away from a share deal having paid an effective tax rate of roughly one and a half percent. The same seller in an asset deal cannot. That difference is what the negotiation is actually about, whatever else gets discussed.

The two structures, plainly

A share deal buys the company. You acquire the legal entity and everything inside it: the contracts, the licences, the bank accounts, the employees, the tax history, the guarantee somebody signed in 2014 and forgot about. The business continues as the same legal person under new ownership, and nothing on the outside needs to change.

An asset deal buys the substance. You acquire specified items, the equipment, the vehicles, the customer contracts, the stock, the name, and leave the legal shell behind with the seller. In principle you take what you want and leave what you do not.

The first is the workforce. On a transfer of a business or part of a business, German employment relationships pass to the acquirer automatically. Terminating somebody because of the transfer is void, the previous employer stays jointly liable for a year on obligations already due, and each employee may object in writing within a month of being informed. An asset deal designed around leaving part of the staff behind has been designed around something that does not exist.

The second is tax. Under section 75 of the German fiscal code, taking over a business can make the acquirer liable for taxes that arose before the sale. The liability is bounded, covering business taxes arising since the start of the calendar year before the transfer, and capped at the value of what was acquired. What it is not is optional. An exclusion agreed between buyer and seller has no effect against the tax authority, which is a detail that surprises people who believed the purchase agreement settled the question.

Why the buyer wants assets

Beyond the liability story, which is real, the substantive reason is depreciation.

In an asset deal the price gets allocated across what was bought, and the assets go on to the buyer's books at market value rather than at whatever written-down figure they carried before. That step-up creates new depreciation, including on the goodwill portion, which is deductible over time. The buyer is effectively getting tax relief on part of the purchase price.

A share deal gives none of that. You bought shares, the company's own asset values are untouched, and the price you paid sits in your holding as an investment rather than as anything you can write down against profits. Same business, same money, materially different after-tax cost of owning it.

The buyer is not being difficult about structure. They are trying not to pay for the same asset twice, once in cash and again in tax relief they will never receive.

Why the seller wants shares

The seller's side is simpler and, in the German context, considerably larger in magnitude.

A seller who holds the operating company through a corporate holding structure benefits from a rule that exempts 95 percent of a capital gain on the sale of shares from corporation tax, leaving an effective burden in the region of one and a half percent at the holding level. Not fifteen percent. Roughly one and a half.

Sell the same business as a set of assets instead and that treatment does not apply. The gain is realised inside the operating company and taxed there, and then taxed again when it is distributed to the owner. The difference between those two outcomes on a meaningful transaction is very large, and it is entirely a function of structure rather than price.

Approaching it that way makes the conversation tractable. A buyer who insists on an asset deal is asking the seller to give up a tax outcome worth a specific sum, and the professional version of that request is accompanied by a price adjustment. A seller who insists on shares is asking the buyer to forgo depreciation worth a specific sum, and the same applies. Both are negotiable. Neither is a matter of who is being reasonable.

Held side by side, the trade is easier to negotiate than to argue about, because almost every row favours one party and the other party knows it:

Two rows in there are not preferences and cannot be traded, which is worth separating from the rest before anybody starts negotiating. Employees transfer by operation of law in an asset deal whether or not the contract says so, and the acquirer's tax liability under the fiscal code survives any exclusion the parties agree between themselves. Everything else on that table is a price conversation. Those two are facts.

One caveat on the 1.5 percent, because it is quoted misleadingly

That figure is the burden at the holding, and it holds only while the money stays there. It is the right number if the seller intends to reinvest through the structure, which is exactly what a holding exists for. It is the wrong number if they plan to take the proceeds into their personal account, because that distribution is a separate taxable event and the effective rate stops looking anything like 1.5 percent.

Which matters at the table rather than in theory. A seller who is retiring and wants the cash personally has far less to gain from a share deal than the headline suggests, so the premium they are asking you to pay for it is smaller than they think. A seller who is rolling into the next thing has the full benefit and can afford to hold firm. Asking which one you are dealing with, early and plainly, tells you how much room is actually in the structure argument. None of this is tax advice and all of it needs a Steuerberater on the specific facts, but knowing which question decides it costs nothing.

How to actually decide

Structure is usually settled long before anybody has done this arithmetic, on the basis of whoever's advisor spoke first. The better sequence is short.

• Establish whether the seller holds through a corporate structure, because that single fact determines the size of the difference
• Price both structures with the tax effects included, and compare the after-tax outcome to each side rather than the headline number
• Check whether key contracts, licences and permits transfer on an asset sale, or whether counterparties get a consent right you would be handing them
• Assess the unknown-liability exposure honestly, since a share deal inherits history and a small company's history is rarely fully documented
• Confirm what the tax liability rule catches regardless of what the contract says, and price the residual
• Decide who captures the difference, in the price, in writing, rather than leaving it as an unspoken win for whoever pushed harder

Contract transferability is what quietly kills asset deals. Contracts do not automatically move: many need the counterparty's agreement, and asking for it tells every customer and supplier that the business is changing hands, at exactly the moment you would rather they did not know. In a business whose value is a book of maintenance agreements, that consent requirement can be decisive on its own, regardless of the tax.

The honest position

For the kind of business I look at, the asset structure is usually preferable, and the reason is unknown liabilities rather than depreciation. A company with fifteen or twenty years of history, informal record-keeping and no audit has things in it that nobody remembers, and a share deal buys all of them. Warranties and indemnities help and they are only as good as the person standing behind them, who is frequently a retired individual with the sale proceeds already spent.

That preference is a default, not a rule, and it loses to two things. If a critical permit or licence sits with the entity and will not transfer, the structure question is settled by the licence. And if the seller's tax position makes a share deal worth substantially more to them than the asset alternative costs me, the right answer is to take the shares, price the risk, and put real protection behind the warranties rather than argue.

The one thing not to do is treat this as a technicality to be resolved by the lawyers after the price is agreed. It is a term worth a large amount of money to both sides and it should be negotiated with the price, not after it. The binary conditions that would end the conversation before any of this comes up are in the seven things that end a deal on the first call, and the rest of the diligence sequence is in due diligence for operators. If you are selling and nobody has raised this with you yet, raise it yourself, because it is likely the largest single number in your outcome that is not the price.

Employment transfer under § 613a BGB; acquirer liability for business taxes under § 75 AO, including its limits and the fact that it cannot be excluded between the parties; the participation exemption on share disposals under § 8b KStG. Structures and rates described here are German and change; this is a description rather than tax or legal advice.