Buying a Company in Germany and Changing its Business Activity Considerations

Germany is a hub for entrepreneurs and businesses due to its strategic location, skilled workforce, and favorable business environment. One way to establish or expand a business in Germany is by buying an existing company. This approach can offer several advantages, including an established infrastructure, existing customer base, and potentially lower startup costs compared to setting up a new business from scratch. However, when considering the purchase of a company in Germany with the intention of changing its business activity, several legal, tax, and operational factors must be taken into account.

Legal Considerations

When buying a company in Germany, the buyer typically acquires the shares of the company (Share Deal) or its assets (Asset Deal). The structure of the deal can significantly impact the legal implications and responsibilities for the buyer.

• Share Deal: In a Share Deal, the buyer acquires the shares of the target company. The company’s legal identity remains unchanged, and it continues to be responsible for its liabilities. The change of business activity may require amendments to the company’s articles of association.
• Asset Deal: An Asset Deal involves the transfer of specific assets and liabilities from the seller to the buyer. The buyer has more flexibility in choosing which assets and liabilities to acquire. However, certain contracts and licenses may require the consent of the other contracting parties for the transfer.

For a change of business activity, the company’s articles of association may need to be amended to reflect the new business purpose; This typically requires a resolution by the shareholders’ meeting with a majority as stipulated by law or the company’s articles of association.

Tax Implications

The tax implications of buying a company and changing its business activity in Germany can be complex and depend on various factors, including the structure of the acquisition and the nature of the new business activity.

• Corporate Income Tax and Trade Tax: The change in business activity may affect the company’s tax losses carried forward and depreciation. It’s essential to assess the tax implications for both the company and the shareholders.
• VAT: The transfer of assets as part of an Asset Deal may be subject to VAT. However, certain transactions can be exempt or eligible for a reduced VAT rate under specific conditions.

Operational and Regulatory Considerations

Changing the business activity of a company in Germany may require various operational and regulatory adjustments.

• Licenses and Permits: The new business activity may necessitate obtaining new licenses or permits. Ensuring compliance with all relevant regulatory requirements is crucial.
• Employment Law: If the change in business activity affects the company’s employees, employment law considerations, including potential redundancies or changes to employment contracts, must be addressed.

Buying a company in Germany with the intention of changing its business activity can be a viable strategy for entering or expanding in the German market. However, it requires careful planning and consideration of the legal, tax, and operational implications. Engaging with experienced legal, tax, and financial advisors is essential to navigate these complexities and ensure a successful transaction.

Mia Wagner, International Client Relations Manager, Specialist in communication with foreign entrepreneurs, business documentation processes, and customer support for international company formation projects.