Corporate Law / M&A

The articles of association are the legal foundation of every company. This not only defines the essential foundations of the company, but also offers the opportunity to adapt the internal structure of the company to the legal standard by means of individual regulations. From the precise definition of qualified majorities for individual or all resolutions, restrictions on disposal and pre-emptive rights to termination and redemption options, numerous adjustments can be made in a partnership agreement. At the same time, a resilient partnership agreement always takes into account potential conflicts in order to provide the shareholders with individual and appropriate solutions in such cases.

Some agreements between individual or all shareholders should not be set out in the articles of association and should therefore be publicly accessible via the commercial register. Nevertheless, there is often a great need to agree special rights and obligations between the shareholders in a legally secure manner and, for this purpose, to include customized voting rights and obligations, co-sale rights and obligations (tag-along, drag-along) or individually negotiated preferential rights in a shareholders’ agreement.

The foundation of a company sets the course for the future of the company. From a lean one-person company to a public limited company founded in kind with numerous shareholders, the challenges involved in founding a company can vary greatly. We are therefore happy to provide you with comprehensive advice and support in choosing the legal form, preparing the formation documentation, the registration process in the commercial register and all other legal issues associated with the formation.

The life of a company also has ups and downs. Accordingly, financial resources can be added to or withdrawn from a company through various capital measures. Whether by way of increases or decreases in share capital or through other capital measures, the statutory approval and procedural requirements for such measures must always be complied with and the interests of the various stakeholders must be appropriately reflected.

Foundations with legal capacity are subject to very different requirements and regulations compared to other company forms, which are also currently being extensively reformed. In addition, the regulations of the respective state law must be observed for the establishment and administration of foundations and the requirements of the respective foundation supervisory authority must be met. You can count on our advice when it comes to setting up and managing a foundation with legal capacity or related foundation forms and transactions.

Many corporate measures or changes must be registered in the commercial register. The necessary registrations are part of our advice and are also prepared by us so that registration via the notary’s office is as simple as possible. We are also in contact with the registry courts involved during the ongoing proceedings in order to work towards an efficient registration process.

M&A are transactions in which either different companies are merged into one legal and economic unit (mergers) or entire companies or parts thereof are acquired (acquisitions). M&A also includes all transactions in which ownership rights to companies are transferred or encumbered with third-party rights and the associated transactions. In addition to the “classic” company acquisition, which many people primarily associate with the term M&A, this also means financing through equity and debt capital or mixed forms (mezzanine), i.e. taking on new investors by way of capital increases or issuing bonds, profit participation rights, convertible loans and similar financing instruments. Measures that are used to form or restructure groups also fall under the umbrella term M&A. In addition to mergers, these include, for example, the spin-off of parts of a company, the change of legal form of an AG into a GmbH, the conversion of a GmbH into a GmbH & Co. KG, the takeover of listed companies through the publication of purchase offers, the exclusion of “troublesome” minority shareholders from a company (squeeze-out) or the contribution of selected operations or parts of operations to another company. Neither “last” nor “least”, the establishment of joint ventures by two or more partners is also covered by the term M&A.

The whole is often more than the sum of its parts. Unlike in physics, where both mergers and demergers are characterized by a loss of mass, mergers and demergers can lead to a real commercial gain. This also leads to a stronger market position, which is why the antitrust authorities keep an eye on and monitor mergers and, after notification, can prohibit the planned merger if it would subsequently dominate the market, or only approve it subject to conditions, whether at national or European level. This applies regardless of whether the market power is created through a merger of two companies or through the acquisition of a company by another company. If a merger is legally permissible, the merger route – including cross-border mergers – can offer considerable advantages over an acquisition, for example in legal terms, as contractual relationships can be transferred to the new entity without the consent of the contractual partner, or in tax terms, as book values can be maintained and a taxable book profit avoided. Conversely, some synergies may be lost when companies are split up. Nevertheless, splitting sometimes makes sense, for example to separate business areas with different risk profiles and to separate liability funds. Here too, a procedure in accordance with the Transformation Act, such as a spin-off or demerger, avoids the need for the transfer of the business to be dependent on the consent of a large number of contractual partners, as well as possible negative tax effects, as are conceivable with the sale of parts of a company. However, the desired effects can only be achieved if all the adjusting screws are set correctly. And in any case, the legitimate interests of the employees must be taken into account in due form and time in the event of a transfer of business.

Shapeshifters are not only found in fantasy literature. Companies can also put on a new legal outfit. By means of a change of legal form, a partnership (e.g. a general partnership or a limited partnership) becomes a corporation (e.g. a stock corporation or a limited liability company) or vice versa – and remains essentially the same with all the same rights and obligations as before. However, the Transformation Act also offers various possibilities for a company to dispose of all of its assets – or certain parts thereof – with all rights and obligations, without liquidation and without the consent of affected employees and other contractual partners, and transfer them to another company (so-called – complete or partial – universal succession). This can be done by merging the assets into another legal entity that either already exists (merger by absorption) or, if two companies join forces to rise from the ashes like a phoenix in a new form, is created specifically for this purpose (merger by new formation). The other way round is a demerger, in which a company is either split into two new legal entities (demerger sounds painful and yes, the transferring legal entity is lost). Or the company remains in existence and transfers only a certain part of its assets to another legal entity, either by way of a spin-off (in which case the shareholders of the transferring company receive shares in the acquiring legal entity) or a spin-off (in which case the transferring company itself receives the shares in the transferring legal entity). If other consideration is to be granted instead of shares, the so-called transfer of assets is available for this purpose. What all reorganization measures have in common is that they are planned and implemented hand in hand with tax advisors, a variety of forms and deadlines must be observed and due consideration must be given to the legitimate interests of minority shareholders (keywords: cash compensation and appraisal proceedings), employees and other contractual partners.

Dare to do something together and be strong together. If two – or more – partners want to join forces to implement a business idea, the establishment of a jointly controlled and financed company (joint venture) is a particularly suitable option. Depending on the initial situation, a minority shareholding of one partner in the company of the other partner may also be more suitable (and in some countries this is only permitted). Or even just the participation in a part of the partner’s company, which is previously spun off into a separate company. Instead of a connection under company law, the conclusion of a mere cooperation agreement under the law of obligations is conceivable, but often only supposedly simpler. Either way, almost as in a marriage, it is important to think early on about what should apply in times of crisis or even in the event of a separation: Who gets what and in what way, with which employees, license rights and other assets, can continue to pursue the business idea alone or with other partners? To prevent premature separation from occurring in the first place, the initial euphoria should not be thwarted by unnecessarily detailed regulations, but should be preserved by ensuring that responsibilities and procedures are as clear as possible.

A joint venture in this narrower sense is a joint project between legally and economically independent companies in which the partners share management responsibility and financial risk.

The purchase or sale of companies or parts of companies is, you guessed it, considerably more complex than that of a car. This does not only apply if a listed target company is to be taken over by way of a public offer to the shareholders (takeover) or if a large number of potential buyers are to be approached in parallel as part of a bidding process. The sale and purchase of a medium-sized company is also a challenging undertaking for those involved. Once the business people have agreed on the key data for such an acquisition and these have been set out in a letter of intent (also known as a memorandum of understanding or term sheet) or an indicative offer from the prospective buyer, the company is put through its paces in a so-called due diligence process with the help of external consultants, with a commitment of the company’s own human resources that should not be underestimated. Do the assumptions made explicitly or implicitly in the letter of intent or the indicative offer regarding the legal, tax, business, technical, etc. status of the target company prove to be reliable? Are the assumptions made in the letter of intent or indicative offer explicitly or implicitly reliable? At the same time, the transaction will be (further) structured from a tax and legal perspective. Should the company shares be acquired (share deal) or, e.g. in the case of a sale out of insolvency (distressed M&A), only the essential assets (asset deal)? Should the purchase price be fixed on the basis of the most recent balance sheet figures (locked box) or initially only provisionally estimated and adjusted after conclusion of the purchase agreement on the basis of a closing balance sheet to be prepared on completion of the transaction (closing accounts)? The purchase agreement is also drafted and negotiated at the same time as the due diligence process, and its structure is usually based on established market standards. Nevertheless, every case is special and the devil is in the detail. Some risks arising from the extensive seller warranties and indemnity obligations regularly contained in the purchase agreement can be significantly reduced by taking out W&I insurance (Warranty & Indemnity Insurance) – to the benefit of both parties. Even after the signing and closing of a company purchase agreement, it is important to manage not only the operational but also the legal tasks involved in merging the acquired company with existing operations or parts of operations of the buyer or buyer group (post-merger integration). If necessary, we will be happy to assist you in settling any disputes that may subsequently arise between the seller and the buyer. However, we prefer it even more when clear and forward-looking contract drafting pays off and avoids disputes from the outset.