The absence of special legal regulations has a major effect on the purchase of a company in the Federal Republic. Company acquisitions are not subject to special takeover codes but are mainly based on the various instruments provided by the Civil Code (B=FCrgerliche Gesetzbuch). On the one hand, this has the advantage compared with other legal systems that contractual freedom of scope with a company acquisition is very extensive but, on the other hand, it has the disadvantage that the complexity of German legal regulations is not automatically clear for lawyers who are not familiar with German law.

The abstraction principle, i.e. the differentiation and separation between contractual obligations and substantive transactions in fulfilment of obligations, often present difficulties when drafting contracts for company acquisitions, especially for foreign lawyers.

Contrary to the case under Anglo-American law for example, ownership of the purchased object does not pass to the buyer upon the conclusion of a contract under German law. In the latter case, the contracting parties first of all undertake to transfer and accept the ownership in question. Initially, the buy only acquires the right against the seller for the transfer of ownership. However, the seller is not prevented from selling the purchased object to any number of other buyers after having concluded the contract.

The buyer also only becomes owner of the purchased object upon completion of the substantive transaction, i.e. the transfer of ownership. In the case of moveable assets or chattels, ownership is normally transferred by a physical hand-over or by an assignment of a right to repossession. In the case of immovable assets (land and buildings) or ships, the conveyance carried out by an appropriate declaration in front of a notary and a subsequent entry in the public register (land registry or ship registry).

Consequently, a special feature of German law is that the date of sale and the date of the transfer of ownership may be different.

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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