Share deal
A second way in which an enterprise can be transferred is via a share deal. This does not involve the transfer of specific assets or liabilities as with an asset deal, but rather the transfer of the shares of a company in which the enterprise is conducted. As a result, the rules concerning the purchase/sale or contribution and opposability to third parties apply to these shares and not to the underlying company. Since shares are an asset, i.e. an immaterial item of movable property, the rules of civil law on the sale of shares simply apply.
The major advantage of a share deal lies in the fact that the company remains the same in relation to third parties. By buying the shares, you actually buy the company in its continuity. Only the identity of the shareholders changes. The sellers in this case are not the company, but the shareholders of the company. That makes a share deal practically and administratively simpler than an asset deal.
The fact that in a share deal the buyer legally only buys the shares has the disadvantage that the seller’s obligation to indemnify for hidden defects (Section 1641 of the Civil Code) only applies to the shares themselves and not to hidden defects in the underlying company. Indirectly by buying shares, you actually buy the entire underlying company with the consequence that
you are indirectly involved in the entire business conducted within the company. If, for example, there is fiscal fraud in the company that you have acquired through a share deal, then you as the owner of the company will inherit the fiscal fraud.
It is therefore important as a buyer to exercise the necessary caution and to cover yourself as much as possible against possible risks that might occur in the underlying company. It also explains the importance of a carefully drafted agreement. AngloSaxon practice, which has accumulated considerable experience of hedging against all types of defects that may subsequently emerge, is therefore particularly suited to European practice. It is here that an M&A specialist is indispensable.
