Corporate, M&A and Private Equity

Corporate M&A in Germany: an overview

Corporate M&A in Germany brings together the law of companies and the law of transactions: how German companies are set up, governed and financed, and how shares and businesses change hands. German company law is codified in a handful of statutes, chiefly the Limited Liability Companies Act (GmbH-Gesetz, GmbHG), the Stock Corporation Act (Aktiengesetz, AktG), the Commercial Code (Handelsgesetzbuch, HGB), the Transformation Act (Umwandlungsgesetz, UmwG) and, for listed companies, the Securities Acquisition and Takeover Act (WpÜG) and the Securities Trading Act (WpHG). Transactions are documented under the general rules of the Civil Code (BGB), supplemented by extensive contractual practice.

For international investors, the most important features are the central role of the notary in GmbH transactions and corporate changes, the public commercial register as the reference for who represents a company and who owns a GmbH, the two-tier board structure of the stock corporation, and employee co-determination on supervisory boards above certain headcounts. For German family businesses and the Mittelstand, typical concerns are succession, shareholder agreements among family branches, minority investments by financial investors and the sale of the business to a strategic or financial buyer.

Our clients come to corporate M&A with different starting points. A US or Asian group setting up or acquiring a German subsidiary needs to understand formalities, co-determination and investment screening. A family-owned Mittelstand company considering a sale wants a structured process that protects confidentiality, its employees and its name. A financial investor needs a deal structure that combines leverage, management incentives and a clear exit path. A start-up needs financing documents that will stand up to scrutiny in later rounds. The legal framework is the same, but the questions that matter differ, and good advice starts by identifying them.

This pillar page introduces the main legal forms, the transaction types we cover and the issues that recur across all of them. It links to our detailed pages on mergers and acquisitions, public takeovers, private equity, venture capital and corporate governance.

Legal forms for doing business

Most businesses in Germany operate through one of a small number of legal forms. The choice determines liability, governance, formalities, co-determination exposure and tax treatment, and it is often revisited when a company grows, takes on investors or prepares for a sale.

The GmbH is the workhorse of German business. It can be formed by one or more shareholders with articles of association recorded by a notary, and it is entered in the commercial register, which shows its managing directors and their powers of representation. Shareholders decide on fundamental matters and may instruct the managing directors. The capital maintenance rule in § 30 GmbHG prohibits distributions out of the assets required to cover the share capital, which affects group financing and dividends. Foreign investors forming a subsidiary will find a step-by-step overview in our GmbH formation checklist.

The stock corporation is the form for listed companies and for larger companies with a broad shareholder base. It has a mandatory two-tier structure: the management board (Vorstand) runs the company on its own responsibility and is not bound by shareholder instructions, the supervisory board (Aufsichtsrat) appoints and supervises the management board, and the general meeting (Hauptversammlung) decides on fundamental matters, the appropriation of profits and the election of shareholder representatives to the supervisory board. AG shares can be transferred without notarisation, and the general meeting can be held as a virtual meeting where the articles allow it (§ 118a AktG).

The partnership law reform (Personengesellschaftsrechtsmodernisierungsgesetz, MoPeG) modernised the law of partnerships and introduced a register for civil-law partnerships, which can now be entered in a partnership register (§ 707 BGB). Registration is in practice necessary for a civil-law partnership that wants to acquire real estate or GmbH shares. All legal entities and registered partnerships must record their beneficial owners in the transparency register under § 20 of the Money Laundering Act (GwG).

Transactions we cover in corporate M&A

Corporate M&A work divides into several transaction types, each with its own legal framework and market practice. The detailed pages in this practice area explain them.

Mergers and acquisitions

Our page on mergers and acquisitions in Germany covers share deals and asset deals: the notarisation of GmbH share transfers under § 15 GmbHG, due diligence, the structure of German share purchase agreements with their independent guarantee regimes, locked-box and completion-accounts pricing, warranty and indemnity insurance, carve-outs, and regulatory approvals such as merger control and investment screening. It also explains the automatic transfer of employees in asset deals under § 613a BGB.

Public takeovers

Acquisitions of listed companies follow the WpÜG. Our page on public takeovers explains voluntary, takeover and mandatory offers, the 30% control threshold (§ 29(2) WpÜG), the offer timetable and BaFin review, minimum pricing, the target board's duties, squeeze-outs, domination agreements, delisting and shareholder activism.

Private equity

Financial investors acquire, hold and sell companies under general corporate, tax and finance law. Our private equity page discusses buyout structures with GmbH and GmbH & Co. KG vehicles, leverage and capital maintenance, management participation, co-determination and investment screening for funds, buy-and-build strategies and exits including continuation vehicles.

Venture capital

Start-up financing in Germany has its own documentation conventions. Our venture capital page explains notarised financing rounds in the GmbH, liquidation preferences and anti-dilution, founder vesting, convertible loans, ESOP and VSOP programmes after the Future Financing Act and exits.

Corporate governance

The governance of the GmbH, AG and SE is covered on our corporate governance page: the duties and liability of managing directors and board members, the business judgment rule in § 93(1) AktG, D&O insurance, shareholder and general meetings, the German Corporate Governance Code and group law.

The notary, the register and formalities

Formalities are a defining characteristic of corporate M&A in Germany. The notary (Notar) is an independent holder of public office who records deeds, certifies signatures and files applications with the commercial register. Notarial form is required, among other things, for the articles of association of a GmbH and their amendment (§ 53(3) GmbHG), for the assignment of GmbH shares and the obligation to assign them (§ 15(3), (4) GmbHG), for subscription declarations in capital increases (§ 55(1) GmbHG), for real estate purchase agreements (§ 311b BGB) and for general meeting resolutions of an AG requiring a qualified majority. Notarial fees follow a statutory schedule based on transaction value.

The notary does not represent either party and does not negotiate. Parties therefore retain their own counsel to prepare and negotiate documents, while the notary ensures that the deed is legally effective and properly recorded. Foreign parties can act through powers of attorney, which usually need to be certified and apostilled or legalised, and in some cases video procedures are available for GmbH formations and resolutions.

The commercial register (Handelsregister) is maintained by the local courts and is publicly accessible online. It shows the legal form, registered seat, share capital, managing directors or board members and their powers of representation, and for GmbHs the current list of shareholders. Under § 16(1) GmbHG, only the person entered in the shareholder list filed with the register is treated as a shareholder in relation to the company, which makes the shareholder list a key due diligence document.

Regulatory overlays on corporate M&A

Few corporate M&A transactions of any size close without at least one regulatory review. German merger control under § 35 GWB applies where the parties' combined worldwide turnover exceeds EUR 500 million and two parties meet the domestic turnover thresholds of EUR 50 million and EUR 17.5 million, or where the consideration exceeds EUR 400 million and the target has substantial domestic activities. If the EU Merger Regulation applies, the European Commission reviews the deal instead. See German and EU merger control.

Investment screening by the Federal Ministry for Economic Affairs and Energy applies to acquisitions by non-EU investors and, in defence-related sectors, by all foreign investors. Mandatory filings arise at voting-rights thresholds of 10%, 20% or 25% depending on the sector (§ 56 AWV), with a prohibition on completing the transaction before clearance. Financial services, insurance, energy, media and telecommunications have additional sector-specific approvals. Our page on foreign investment control explains the procedure, and the EU Foreign Subsidies Regulation adds a further notification regime for large deals.

Employment law is the third overlay. Works councils have information rights in transactions through the economic committee, operational changes may require negotiations on a reconciliation of interests and a social plan, and in asset deals employees transfer automatically under § 613a BGB. Board-level co-determination under the One-Third Participation Act and the Co-determination Act depends on headcount and can change as a result of a transaction. See our pages on works councils and board-level co-determination.

Reorganisations, joint ventures and group structures

Corporate work is not limited to acquisitions. Groups regularly reorganise through mergers, divisions, spin-offs, hive-downs and changes of legal form under the Transformation Act. The UmwG allows these measures by universal succession, which avoids individual asset transfers and counterparty consents, but it requires notarised agreements and resolutions, reports, creditor protection and, where employees are affected, information to the works council. Since the implementation of the EU Mobility Directive, cross-border conversions, mergers and divisions are also regulated in the UmwG.

Reorganisations are often the first step of a sale: a business unit is hived down into a new GmbH so that the buyer can acquire shares rather than individual assets, or a holding structure is simplified so that the target group can be presented cleanly to bidders. Tax neutrality under the Reorganisation Tax Act (UmwStG) usually depends on conditions that must be checked in advance. Our insight on mergers and spin-offs under the UmwG explains the procedure.

Joint ventures are usually set up as a GmbH with a detailed shareholders' agreement on governance, funding, deadlock and exit. Domination and profit transfer agreements create contractual groups, which are common for tax reasons (fiscal unity) and require approval by three quarters of the capital represented at the general meeting in an AG (§ 293(1) AktG). Group law also governs intra-group financing, cash pooling and the duties of managing directors in subsidiaries, who remain personally responsible for complying with capital maintenance rules even when acting on parent instructions.

Capital measures and equity financing

Raising equity in a German company follows formal rules. In a GmbH, a capital increase requires a notarised shareholder resolution passed with three quarters of the votes cast (§ 53 GmbHG) and notarised or certified subscription declarations (§ 55(1) GmbHG), and it takes effect on entry in the commercial register. In an AG, the general meeting can resolve an ordinary capital increase or create authorised capital that allows the management board, with supervisory board consent, to issue new shares for up to five years. Shareholders have statutory subscription rights, which can be excluded only for objective reasons or, in listed companies, in a simplified procedure for cash capital increases within statutory limits.

Contributions in kind, such as the contribution of a business or shares, require a valuation and, in an AG, an audit, and undervalued contributions lead to a cash top-up liability. Hidden contributions in kind, where a cash contribution is paid back to the subscriber in exchange for an asset, are a classic trap in German corporate law. Shareholder loans are subordinated in insolvency, and repayments in the year before an insolvency filing can be avoided, which matters for group financing and for investors who combine equity and debt.

Family businesses face particular questions: how to align shareholder agreements and articles with the family's long-term plans, how to bring the next generation into management, how to deal with shareholders who want to exit, and how to combine corporate structure with succession and tax planning. See our page on succession planning and our insight on family business governance.

Disputes and liability in corporate M&A

Corporate M&A disputes arise in three main settings. Post-closing disputes concern guarantee claims, price adjustments, earn-outs and alleged fraud under share purchase agreements; they are often heard in arbitration. Shareholder disputes involve challenges to resolutions, exclusion of shareholders, deadlock and claims against managing directors or board members. Liability claims against directors are frequently brought after a change of control or in insolvency. The new Commercial Courts introduced by the Justizstandort-Stärkungsgesetz can hear corporate and M&A disputes from a value of EUR 500,000 at first instance and allow proceedings in English (§ 119b GVG); see Commercial Courts.

Prevention is cheaper than litigation. Clear dispute resolution clauses, expert determination for accounting questions, robust documentation of board decisions under the business judgment rule and well-drafted shareholder agreements reduce the risk and cost of later conflict. Our page on international arbitration explains how arbitration clauses are used in German transactions.

How TRW & Co helps

We advise German companies, family businesses, financial investors and international groups on corporate M&A under German law. Our work covers company formation and structuring, share and asset deals, public takeovers, private equity buyouts and exits, venture capital rounds, joint ventures, reorganisations under the UmwG and day-to-day governance of GmbHs, AGs and SEs. We coordinate merger control, investment screening and employment workstreams so that the transaction timetable is realistic, and we organise the notarial process with the notary chosen by the parties. We explain German formalities to international clients in advance and prepare documents that work in practice. To discuss a transaction, a reorganisation or a governance question, please contact us.