Designating the contracting parties involved in the sale and purchase of a company creates no problems as far as the buyer is concerned as it is normally clear who is to be the intended buyer. It should always be carefully examined who is to be the intended seller. This examination is based on the legal object of the purchase and sale.

In the case of an asset deal, the seller can only be the legal owner of the objects and rights to be sold, i.e. of the assets to be sold. In the case of a company purchase by acquisition (share deal), it should also be examined whether the main items of the company assets belong to the company itself or to third parties in order to ensure the intrinsic value of the participation this in addition to examining the legal rights and ownership of the seller in the shares of the company in question. The land registry, trade and commercial registry, patent and trademark register, license agreements and Articles of Association may be used for examining the position of the buyer. Such examination is normally made on the basis of a so-called "due-diligence list" (cf. the example and comments in this document). If legal or any other authorised representatives are involved in the conclusion of the contract, it should always be examined whether a proper power of attorney is available and whether the representatives in question are acting within the scope of such power of attorney.

A due diligence examination is normally carried out in such a way that the lawyers examine the legal position and commission an accountant or some other expert to carry out an examination of the financial position for example, the intrinsic value of stocks or land and buildings. If a purchase of shares is intended, the lawyers should check the origin of the shares, their division into part-shares and all transfers thereof based on an inspection of all the relevant contract documents. It is also examined whether valid contracts have been concluded and whether the obligations resulting from the said contracts have been observed. In addition, the lawyers check the legal interest of the holder of the shares together with the rights and obligations arising from the individual shareholdings. In the case of asset deals, the lawyers check whether the assets are owned by the seller and whether they are unencumbered by third party rights. If the assets in question are encumbered, for example in the form of security rights of creditors of the asset owner (banks), the lawyers hold discussions with legal owners of such rights and endeavour to ensure that the assets can be legally transferred. Particular importance is attached to an examination of the Articles of Association.

The lawyers also examine to what extent the buyer assumes liabilities or commitments of the seller upon the purchase of assets. Particular importance is attached in this connection to the ruling in =A7 419 of the German Civil Code under which the buyer of assets also assumes the liabilities of the seller if the assets in question represent 80 % or more of the total assets of the seller.

The accountants on the other hand examine the intrinsic value of the shares or assets and, if necessary, the financial position of the seller as well in order to establish whether the assets to be sold represent 80 % or more of the total assets of the seller. If this is the case, the accountants check the total amount of the liabilities of the seller of the assets (as far as possible).

Other persons possibly involved in the contract on the side of both the buyer and seller are those whose consent is required for the validity or the execution of the contract. Including any possible official departments to be involved, such persons could well be the spouses, partners, co-proprietors, secured creditors, contracting partners of the seller, co-heirs or reversionary heirs for example.

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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