Asset Deal vs. Share Deal: Tax and labor law implications

Comprehensive guide for entrepreneurs to understand the differences and their impact on buying and selling.

Introduction: Why structure determines the success of the transaction

When buying or selling a company, a key question arises early on: Should the transaction be structured as an asset deal or a share deal? This decision is by no means merely technical. It significantly influences the tax burden, the distribution of liability, employment law consequences, and, last but not least, the practical feasibility of the deal.

In practice, it has repeatedly proven that the choice of structure is one of the decisive factors for the economic success of a transaction. While sellers often prefer a share deal, buyers, for understandable reasons, frequently tend towards an asset deal. The following guide highlights the key differences and places them in a practical context.

The basic structure: Individual transfer vs. acquisition of shares

The difference between an asset deal and a share deal begins with the legal structure. In an asset deal, individual assets of a company are transferred. These include, for example, machinery, real estate, intangible assets such as trademarks or software, as well as contractual relationships and receivables. The transfer takes place by way of individual succession, which means that each individual asset must be identified and legally transferred.

In contrast, a share deal involves the buyer acquiring not individual assets, but the shares in the company itself. The company remains unchanged and retains all rights and obligations. Only the shareholder structure changes. Economically, this means that the buyer takes over the company as a whole, "as is."

The object of purchase in practice: What actually passes through

The theoretical distinction becomes particularly relevant when considering what is actually being transferred. With an asset deal, there is generally the possibility of selectively choosing individual assets and excluding undesirable risks. This flexibility is one of the main reasons why buyers often prefer this structure.

In practice, however, this "cherry-picking" quickly reaches its limits. Not all economically relevant positions are freely transferable. In particular, entity-specific rights – such as official permits, regulatory approvals, or certain licenses – are often inextricably linked to the entity. The same applies to key contractual relationships, which are either not transferable or require the consent of the other party.

Especially in regulated business models or with long-term key contracts, this can lead to an asset deal being economically unviable or practically impossible. In such situations, the structural strength of the share deal becomes apparent: Since the company itself remains unchanged, all contracts and legal entity-specific rights are automatically transferred.

Tax implications from the seller's perspective

From a tax perspective, asset deals and share deals differ significantly. In an asset deal, the sale takes place at the company level. This reveals and taxes any hidden reserves. If a distribution is subsequently made to the shareholders, this can lead to further taxation. Economically, this often results in double taxation.

In contrast, a share deal is often significantly more attractive for sellers. For individuals, the partial income inclusion method regularly applies, meaning only a portion of the capital gain is taxable. For corporations, capital gains are typically 95 percent tax-exempt under Section 8b of the German Corporation Tax Act (KStG). Trade tax implications can also be favorable.

These differences explain why, in practice, sellers regularly prefer the share deal and actively demand corresponding structuring.

Tax implications from the buyer's perspective

While a share deal is often tax-advantageous for the seller, the picture is different from the buyer's perspective. In an asset deal, the buyer can value the acquired assets at the purchase price. This leads to a so-called step-up and opens up new depreciation potential. The resulting tax relief directly impacts the profitability of the investment.

In a share deal, however, the book values in the target company remain unchanged. There is no step-up. This significantly reduces the tax planning options for the buyer. However, existing loss carryforwards of the target company can represent an economic advantage, although the restrictions, particularly those under Section 8c of the German Corporation Tax Act (KStG), must be carefully examined.

In practice, this creates a classic area of tension: While the seller prefers the share deal, the economic advantage often lies with the buyer in the asset deal.

Real estate transfer tax and sales tax

There are also significant differences regarding real estate transfer tax. In an asset deal, the direct transfer of real estate is generally subject to real estate transfer tax. A share deal can also trigger tax liability, particularly if certain shareholding thresholds are exceeded. The legal regulations have been considerably tightened in recent years, so that there is now very little room for maneuver.

The distinction is also important in the area of value-added tax (VAT). While asset deals are generally subject to VAT, the VAT exemption for the transfer of a going concern (GiG) often applies. Share deals, on the other hand, are regularly exempt from VAT, as they involve the transfer of company shares.

Employment law consequences: The transfer of undertakings according to § 613a BGB

A particularly practical difference lies in labor law. In a share deal, the employer remains unchanged. For the employees, nothing formally changes, so no special labor law mechanisms are triggered.

In contrast, an asset deal involves a transfer of a business or part of a business, which is subject to Section 613a of the German Civil Code (BGB). The employment relationships automatically transfer to the acquiring company, including all rights and obligations. This includes, in particular, existing remuneration structures, company agreements, and other contractual provisions.

At the same time, employees have a statutory right to object. In practice, this can lead to considerable uncertainty, especially if employees remain with the seller and continue to be paid without actually being able to work. The often-assumed advantage of "cherry picking" is therefore only partially realizable in the context of labor law.

Contract transfer and liability risks

Significant differences also emerge when it comes to the transfer of contracts. In a share deal, all contracts remain with the company. The consent of the contracting parties is generally not required, unless the contract contains so-called change-of-control clauses.

In contrast, an asset deal requires the individual transfer of contracts. This regularly necessitates the consent of the respective contracting parties. Furthermore, certain contracts or rights are either not transferable or only transferable to a limited extent. This can lead to significant uncertainties during the transaction and affect its economic value.

With regard to liability risks, in a share deal the buyer effectively assumes all of the company's existing liabilities. In practice, these are secured through guarantees, indemnities, and insurance. In contrast, an asset deal offers the possibility of selectively assuming liabilities. However, statutory liability provisions, such as those under Section 25 of the German Commercial Code (HGB), must still be observed.

Asset deal in crisis: The transfer of assets for restructuring

Asset deals are particularly important in crisis situations. In so-called transfer-based restructuring, they enable the acquisition of the valuable parts of a company without having to assume all of its existing liabilities.

Especially in insolvency situations, an asset deal is therefore often the preferred structure. It allows for a clear separation between economically viable business operations and burdened legacy structures. At the same time, the transaction can usually be implemented faster and with greater legal certainty than a share deal.

Decision-making in practice: Structure as a negotiation outcome

The decision between an asset deal and a share deal rarely follows a purely theoretical logic. In practice, it is regularly the result of negotiations between the parties.

For tax reasons, the seller will often prefer a share deal. The buyer, on the other hand, will try to realize the advantages of an asset deal, particularly with regard to depreciation potential and liability limitation.

The final structure is therefore usually an economically balanced compromise, which is supported by purchase price mechanisms, warranty catalogs and tax compensation regulations.

Conclusion: No standard solution, but a structured decision.

The choice between an asset deal and a share deal is one of the key decisions in any corporate transaction. It should not be considered in isolation, but as an integral part of the overall strategy.

Crucial is an early analysis of the tax, legal, and economic framework. In particular, aspects specific to the legal entity, labor law risks, and practical feasibility should be included in structural considerations from the outset.

Support with your transaction

Structuring company acquisitions and sales requires experience and an integrated understanding of law, tax, and transaction practice.

We regularly advise on national and international transactions – from classic share deals to complex asset deals and distressed structures.

If you are planning a transaction or would like to coordinate on the optimal structure at an early stage, please feel free to contact us.