The regulations referred to in the case of an asset deal also apply to the acquisition of a shareholding. Liability on the part of the buyer for liabilities of the seller in accordance with =A7 419 of the German Civil Code (BGB) also apply to the purchase of a share if the shares constitute almost the total estate of the seller.

=A7=A7 25 and 26 of the German Commercial Code (HGB) also apply to the purchase of a share. They apply if shares in a private partnership (an unlimited partnership (OHG) or an limited partnership (KG)) are directly and simultaneously transferred to a buyer. In this case, the dissolution of the partnership is constituted with execution of the transfer, resulting in a transfer of the trading business with the partnership's assets to the buyer as a sole trader rather than a liquidation of the partnership. =A7=A7 25 and 26 of the German Commercial Code apply indirectly if the trading business of the seller is first of all transferred to a company, e.g. a private limited company (GmbH),in order to execute the sale and if the shares of this company are then transferred to the buyer.

There are also other significant liability risks with regard to the purchase of shares in a private limited company. The buyer is liable for the payment of any outstanding capital contributions. The seller, as joint and several debtor, is also liable along with the buyer for any outstanding payments of any outstanding capital contributions which are due to the company on the registration date of the transfer of shares and which have not been effected on the aforesaid date.

The buyer cannot exempt himself/itself from this liability by a subsequent contestation of his/its share purchase. Both the seller and buyer are also jointly and severally liable for uncollectable capital contributions of other shareholders of the company in accordance with the prerequisites of =A7 24 of the German Companies Act (GmbHG) whereby the liable party is that party who or which was a co-shareholder of the defaulting shareholder when the capital contribution was due. The same also applies to any supplementary contributions which were in arrears.

Liability risks may also arise if the requirements of due and proper provision and maintenance of capital are not observed. These liability risks apply in the case of formations on the basis of non-cash capital contributions and capital increases. The so-called differential liability under =A7 9, para. 1 of the German Companies Act (GmbHG) should also be borne in mind.

The application of personal liability rules are also possible with an acquisition of shares in a limited partnership (KG). With regard to the liability bases, a differentiation should be made on whether the limited partner holding to be acquired is a holding in respect of which the liable contribution has already been paid in full or whether a limited partner holding is involved with the liability contribution not having been paid in full.

The following should be borne in mind if the acquisition of a limited partner holding is involved in respect of which the liability contribution as defined in =A7 172, para. 1 of the German Commercial Code (HGB) has been paid in full on the date of the legal transfer. The seller-buyer singular succession has to be recorded in the commercial and trade registry by a registration of the legal succession notification, whereby the parties concerned have to confirm in their submission to the trade and commercial registry for the limited partnership that, in connection with the withdrawal and transfer of shares, no compensation has been granted or promised from the partnership assets to the withdrawing limited partner seller. The legal succession notification does not apply, however, if the limited partner share is transferred to the general partner as the general partner is personally liable without limitation in accordance with the law. If the limited partner is only entered in the trade and commercial registry after the date of the in rem legal transfer, he/it is liable in full for the new liabilities of the limited partnership sustained between the transfer date and the registration date.

If a limited partner holding is sold without all the liability contributions having been paid, the seller and buyer are also liable as joint and several debtors even if the legal succession notification has been registered; the outgoing seller is only liable to the former creditors but with defence of the statute of limitation as defined in =A7 159 of the German Commercial Code (HGB).

It should always be borne in mind that liability for a capital contribution which has already been paid in full can be reinstated if repayments of capital contributions have been made in accordance with =A7 172, para. 4 of the German Commercial Code (HGB). Such repayment is said to have take place if the limited partner has made withdrawals or if his/its capital holding has been reduced below the level of the liable capital contribution as a result of losses. A deficiency in the liable capital contribution may also arise if it later transpires that a non-cash contribution to the liable capital contribution was over-valued, if excessive distributions of profit are made on account of incorrect financial statements or if any other benefits are granted from the partnership assets without adequate compensation in return. An indirect recourse on the seller may also arise if securities for the purchase price claims or for financing the purchase price payment were registered on the assets of the limited partnership.

Additional liability is also possible in the event of a change of the general partner. If the buyer assumes the general partner position of the seller in a share deal, both the seller and the buyer are fully liable as joint and several debtors for the liabilities on the transfer date. If agreements are reached to the contrary, such agreements are invalid in dealings with third parties. The liability of the seller is limited to 5 years in such a case in accordance with =A7=A7 159 and 160 of the German Commercial Code (HGB), however.

From a contractual point of view, security for both parties is only possible in this respect by giving internal indemnity obligations. The buyer undertakes to indemnify the seller against claims relating to former liabilities which were contractually taken over together with the company assets; the seller undertakes to indemnify the buyer for claims relating to the former liabilities of the company, payment of which was agreed by the seller. In view of the fact that liability matters are normally important for the parties in connection with the purchase and sale of a company, the resulting liability risks from both an asset deal and an share deal should be subject to special scrutiny in each individual case.

For further information please contact Dr Erich Michel, Wessing Berenberg-Gossler Zimmermann Lange, Freiherr-Vom-Stein-Strasse 24-26, Frankfurt am Maim 60323, Frankfurt, Germany- Tel: +496 997 1300, Fax: +496 997 130100.

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