Asset Deal vs. Share Deal: Which Transaction Structure Is Better?

In a share deal, shares in the company are transferred. In an asset deal, individual assets are. For sellers, the share deal is more tax-efficient, for buyers it is often the asset deal. The two structures differ fundamentally in liability, tax burden, employment law consequences and operational complexity. This guide sets out the differences step by step and gives a practical decision guide for M&A transactions in the DACH region.

Definition of an asset deal

An asset deal (purchase of individual assets) is a transaction structure in which the buyer does not acquire the shares in the company, but individual assets and liabilities of a business. The buyer chooses which assets to take over and which stay with the seller.

Typical assets transferred in an asset deal include tangible assets such as machinery, real estate and inventory, as well as intangible assets such as patents, trademarks, the customer base and the order backlog. Contracts with customers, suppliers and employees can also be transferred individually. As a rule, however, this requires the consent of the respective counterparty.

The asset deal gives the buyer maximum flexibility. The buyer can take over the valuable parts of the business and deliberately leave out problematic legacy liabilities, litigation or unfavourable contracts. This cherry-picking is the central structural advantage of the asset deal. The transaction is, however, operationally more complex, because each asset has to be transferred separately in legal terms.

In practice, the asset deal is particularly common in transactions involving sole proprietorships and partnerships, in restructuring transactions and in carve-outs of individual business units from larger groups. In the DACH Mittelstand, the asset deal is used above all when succession solutions are sought for parts of a business, or when the succession is limited to certain operating units.

Definition of a share deal

A share deal (share purchase) is the transfer of shares in a company: shares in a GmbH, shares in an AG or limited partnership interests in a KG. The buyer does not acquire individual assets, but the stake in the legal entity itself. The company continues to exist with all its contracts, liabilities, permits and employment relationships.

The decisive difference from the asset deal is continuity. All contractual relationships, licences, public-law permits and customer contracts pass automatically to the new owner together with the company. No individual contractual transfer and no third-party consent is needed, unless a contract contains a change-of-control clause that is triggered by a change of shareholder.

For the buyer, this means a much simpler transaction in operational terms: the business carries on unchanged after closing. At the same time, the buyer takes over the company with its entire history, including all known and unknown liabilities. This liability risk makes thorough due diligence indispensable in a share deal.

In DACH transaction practice, the share deal is the more common structure, especially for GmbH transfers in the Mittelstand. It dominates full-exit scenarios, private equity transactions and the transfer of entire groups. According to market data, around 70 to 80% of all M&A transactions in the German Mittelstand are structured as share deals.

Asset deal vs. share deal compared

The following table summarises the main differences between an asset deal and a share deal. It is a frame of reference. The best structure always depends on the specific circumstances of the transaction.

Tax differences in detail

Tax treatment is often the deciding factor in the choice between an asset deal and a share deal. The interests of buyer and seller are typically diametrically opposed, which calls for a balance of interests in the purchase price negotiation.

Seller perspective: share deal preferred

Individuals who sell GmbH shares benefit from the partial income method (Teileinkünfteverfahren) under §3 No. 40 EStG: 40% of the capital gain is tax-free, so effectively only 60% of the gain is subject to income tax. At a personal tax rate of 45% (top rate), this results in an effective burden of around 27% plus solidarity surcharge.

The situation is even more favourable for corporations as sellers. Under §8b (2) KStG, 95% of the gain from the sale of shares in a corporation is tax-free. The effective tax burden is therefore only around 1.5% corporate income tax plus trade tax on the remaining 5%. In practice, that is a total burden of less than 2%.

Example calculation for the seller (individual, share deal):

• Capital gain: €5,000,000
• Taxable (60%): €3,000,000
• Income tax (approx. 45%): €1,350,000
• Solidarity surcharge (5.5%): €74,250
• Effective total burden: approx. €1,424,250 (28.5%)

In an asset deal, by contrast, the capital gain is taxed as current profit. The hidden reserves of the individual assets are realised, and the gain is subject to full income tax or corporate income tax plus trade tax. The tax burden here can reach 40 to 50% of the gain.

Buyer perspective: asset deal preferred

For the buyer, the tax advantage of the asset deal lies in the step-up. The acquired assets can be capitalised in the balance sheet at their acquisition cost (= pro rata purchase price). If the purchase price exceeds the previous book values, the depreciation base rises accordingly. This higher depreciation reduces taxable profit over the useful life of the assets.

Example calculation for the buyer (asset deal with step-up):

• Purchase price: €10,000,000
• Previous book values of the assets: €3,000,000
• Step-up amount: €7,000,000
• Additional depreciation (assumed 10 years, straight-line): €700,000 per year
• Tax saving p.a. (at a 30% tax rate): €210,000
• Cumulative tax saving over 10 years: €2,100,000

In a share deal, this advantage does not apply. The book values in the acquired company remain unchanged, because only the shares change owner. The premium of the purchase price over book values (goodwill) can only be recognised at the level of the investment, but cannot be depreciated for tax purposes.

In negotiations, this tax conflict of interest often leads to a compromise: the buyer accepts the share deal the seller prefers, but receives a purchase price reduction that fully or partly compensates for the lost tax advantage. To put the valuation parameters in context, it helps to look at the current EBITDA multiples in the DACH region.

Liability

Alongside taxation, the allocation of liability is the second central factor in choosing the structure. The differences are considerable and can fundamentally change the buyer's risk exposure.

Liability in a share deal

In a share deal, the buyer takes over the company with its entire liability history. All existing liabilities, known or unknown, remain in the company. This includes tax risks, environmental contamination, warranty claims, employment law obligations and potential litigation. The buyer protects against these risks mainly through comprehensive warranties and indemnities in the purchase agreement (SPA) and through thorough due diligence.

Common contractual protections in a share deal are representations & warranties (assurances and guarantees from the seller), indemnity clauses for identified risks, purchase price retentions (escrow) for a defined period and warranty and indemnity insurance (W&I), which is increasingly standard in private equity transactions in particular.

Liability in an asset deal

In an asset deal, the buyer can limit liability deliberately: the buyer only takes over the liabilities that are explicitly listed in the purchase agreement. Legacy liabilities, tax risks and unknown liabilities as a rule remain with the seller or in the selling company. This cherry-picking reduces the liability risk considerably.

There are, however, limits for liability for tax debts (§75 AO: the acquirer of a business is liable for its operating tax debts) and for environmental contamination (under the Federal Soil Protection Act, the owner of a property is liable regardless of the transaction structure). Liability for continuing the company name under §25 HGB can also become relevant in an asset deal if the buyer continues to trade under the previous company name.

For buyers planning an acquisition as part of a buy-and-build strategy, the liability limitation of the asset deal is particularly relevant: every add-on acquisition should be structured so that existing portfolio companies are not put at risk by the target's legacy liabilities.

Employment law consequences (§613a BGB)

The employment law effects differ significantly depending on the transaction structure and matter a great deal in practice for both sides, the buyer and the workforce.

Share deal: no change to employment relationships

In a share deal, only the shareholder changes. The company as employer stays the same. All employment relationships continue unchanged. There is no transfer of business within the meaning of §613a BGB, because the employer remains the same. Formally, nothing changes for employees: contracts, length of service, company pension schemes and all other entitlements remain unaffected.

A share deal can, however, lead to restructuring in practice, especially in private equity takeovers. The restructuring is then not a direct consequence of the transaction, but a business decision of the new owner, and it is subject to the regular employment law requirements (protection against dismissal, works council involvement, social plan).

Asset deal: transfer of business under §613a BGB

In an asset deal, §613a BGB usually applies, provided a business or part of a business is transferred. The legal consequences are mandatory and cannot be excluded by contract:

• Automatic transfer: all existing employment relationships pass to the acquirer by operation of law, with all rights and obligations.
• Ban on dismissal: a dismissal because of the transfer of business is invalid. Dismissals for other reasons (operational or personal) remain possible.
• Protection of existing terms: working conditions may not be changed to the employees' disadvantage for at least one year after the transfer, unless a collective agreement applies.
• Right to object: employees can object to the transfer within one month of being properly informed. The employment relationship then continues with the previous employer, with the risk of a dismissal for operational reasons.
• Joint and several liability: the transferor and the acquirer are jointly and severally liable for obligations that arose before the transfer (the transferor for a maximum of one year).

The duty to inform under §613a (5) BGB is a frequent source of errors in practice. The transferor or the acquirer must inform the affected employees in writing and individually about the date of the transfer, the reason, the legal, economic and social consequences and the planned measures. If the information is flawed, the one-month objection period does not start to run.

Practical decision guide: which structure when?

The choice between an asset deal and a share deal is not a theoretical exercise, but a strategic decision with concrete financial effects. The following scenarios show which structure is preferable in which circumstances.

The share deal is the better choice if:

• The entire company is to be transferred and no cherry-picking of individual assets is needed.
• The company holds permits, licences or concessions that are hard to transfer (e.g. pharmacy licences, BImSchG permits, waste disposal licences).
• The due diligence has shown a clean risk profile and the liability risks are manageable and insurable.
• The seller is an individual or a holding company and benefits from the preferential tax treatment.
• A fast closing is the goal, since no individual transfer of assets is required.
• There are complex contractual relationships whose individual transfer and renegotiation would take disproportionate effort.

The asset deal is the better choice if:

• Only certain parts of the business or business units are to be acquired (carve-out, cherry-picking).
• There are significant legacy liabilities, litigation or tax risks that the buyer does not want to take over.
• It is a restructuring transaction or a purchase out of insolvency (transferring restructuring).
• The tax step-up is particularly valuable for the buyer, for example with high hidden reserves in real estate or intangible assets.
• The target is run as a sole proprietorship or partnership, where a share deal is not possible or does not make sense.
• Change-of-control clauses in key contracts would make a share deal harder or more expensive.

In practice, the structuring decision is often prepared as early as the deal origination phase: the initial view on the transaction structure shapes the valuation, the negotiation strategy and the drafting of the letter of intent (LOI). Anyone who understands the implications of both structures can negotiate on a sounder basis from the start.

Special cases and hybrid forms

In M&A practice, pure asset deals and pure share deals are the end points of a spectrum. Many transactions use hybrid forms or pre-transaction structures to combine the advantages of both approaches:

• Carve-out followed by a share deal: a business unit is first transferred into a Newco by asset deal, and the Newco's shares are then sold by share deal. This combines the preferential tax treatment of the share deal with the liability limitation of the asset deal.
• Conversion models: the target company is converted before the transaction (e.g. from a partnership into a corporation) to allow a tax-efficient share deal.
• Holding structure: before the transaction, the seller contributes the shares into a holding company to benefit from the §8b KStG preferential treatment.

The structuring options are many and always require individual tax and legal advice. What matters is that the choice of structure is addressed early in the transaction process, ideally as early as the preparation of the company sale.