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Cross Border Mergers and Acquisitions in Germany

A Transaction Guide for Indian Investors
Advice made in Germany
Advice made in Germany

Welcome to Germany

India is one of the world’s fastest-growing economies. The growth of the Indian economy has enabled an increasing number of Indian companies to invest in Europe for purposes of their own diversification and sustainable growth. Germany is one of India’s most important EU trading partners and an attractive target country. Indian investors are warmly welcomed in Germany. Indian investors can benefit from the same privileges as national businesses without discrimination and are subject to the same rules as local investors. Investments in German businesses currently enjoy high popularity among Indian investors. Germany is not only a gateway to Europe, but serves a pioneer role in Europe, being one of its strongest economic drivers. Germany is the world’s fourth largest economy and a highly developed country in a stable political, financial, economic and legal environment. “Made in Germany” has become more and more attractive for Indian investments.

Foreign Investment Rules

Generally, there are no restrictions on foreign investors establishing companies in Germany or acquiring an interest in German companies. However, the articles of association of a company may individually restrict the transfer of shares in that company.

Further, a few exceptions exist when dealing with sensitive business areas such as military productions, arms or crypto system manufacturers or high-grade satellite systems. Further restrictions exist in the field of air transport and financial services.

Transactions on the acquisition of direct or indirect interest of 25 % or more of the voting rights in a German company can be reviewed by the Federal Ministry of Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie) if the acquirer is resident outside the European Free Trade Association (EFTA). Acquisitions by investors from within the EFTA can likewise be subject to such a review if the investor has a shareholder resident outside the EFTA who holds 25 % or more of the acquirer’s voting rights. If the Federal Ministry is of the view that the acquisition constitutes a sufficiently serious threat to public order or security, it can either prohibit or restrict the investment within a three months period. The Federal Ministry has only the right but not the duty to do so. In practise, interference by the government is only seen in exceptional cases, particularly if the sale of sensitive technology is concerned.

Choosing the Most Suitable Legal Form for Indian Investments in Germany

In Germany, a liberal attitude towards investors from other countries prevails. Indian investors have almost no disadvantage in comparison to domestic investors. They can find a wide range of company forms for conducting business in Germany. As a first step, they may choose between establishing an independent German entity or relying on a branch or representative office of the Indian entity.

1. Relevant Legal Forms

A branch office can be used to establish a first footprint on the German market. As to independent German entities, German law distinguishes between two types of corporate structures, namely corporations and partnerships.

What legal form to choose will depend primarily on the investor’s intended operations and needs. In establishing a corporation, there are several common types, e.g. the limited liability company (Gesellschaft mit beschränkter Haftung – GmbH), the stock corporation (Aktiengesellschaft – AG) and the partnership limited by shares (Kommanditgesellschaft auf Aktien – KGaA), as well as the European company (Europäische Gesellschaft or Societas Europaea – SE), a more recent type.

2. “GmbH” – the Most Suitable Legal Form

The most common and appropriate investment vehicle for Indian investors is the “GmbH”, a limited liability company designed to function as a closely held or private corporation whose shareholders’ liability is limited to their share contribution in the company. It is a corporate form well-suited for a subsidiary which is part of a group of companies, as well as for all types of business. Investors will encounter restrictions neither on incorporation or acquisition of the GmbH nor on its activities. The GmbH is easy to establish and manage. It must be provided with a minimum share capital of EUR 25,000, of which a minimum of EUR 12,500 must be contributed at the stage of formation. The investor is allowed to declare an administrative seat in India, even though the statutory business seat must be located in Germany.

The GmbH comprises two compulsory corporate bodies: the shareholder’s assembly and a management board. The implementation of an additional advisory or supervisory board is voluntary. As instructions given by the shareholders to the managing director(s) are binding, the shareholders can exert a direct influence on the GmbH’s management.

Managing directors do not necessarily have to be chosen from among the shareholders. There are no restrictions on the managing directors’ nationality either. Managing directors need not be German residents, nor do residents of other countries need government approval for the position. The managing director position however does entail statutory duties, some of which require the director’s presence in Germany, as a managing director must at all times be able to represent the company in legal transactions and be available when conducting the GmbH’s day-to-day business. Indian managing directors should therefore apply for a visa. It is advisable to always have at least one managing director on site, as he may be authorised to act on behalf of the company alone.

The GmbH’s managing directors are liable for breaches of duties of care to the company. Formal approval of the actions of the managing directors by shareholders’ resolution generally relieves them from known liability. It is common practise in Germany for companies to take out “Directors and Officers Liability Insurance” (“D&O”), protecting managing directors against personal liability.

Brexit and its Consequences

In the wake of Brexit, using an English acquisition vehicle and structuring Indian investments to Germany through a UK company may become less popular than it was before the Brexit era. As the legal repercussions of Brexit for companies will only become clear during the exit process, it is currently advisable not to use an English acquisition vehicle, in order to ensure that your business maintains its access to the European Single Market. It is very likely that investments through the UK will become subject to restrictions and hurdles.

Sources of Information for Acquisitions

The initial source for information on a target company is the commercial register kept with the local (municipal) court at the company’s statutory seat. The register is open to the public and available at the registry court or online (www.handelsregister.de). The commercial register provides fundamental information on the particular company, i. e. the company’s name, its legal form, headquarters’ address, existing branches, purpose of business, the share capital, the persons with representation authority, the composition of supervisory boards, the articles of association and whether insolvency proceedings have been initiated. However, there is no German public register confirming the seller’s legal ownership of the shares the investor wishes to acquire in a share deal. It is therefore advisable to verify the correctness of the ownership. Furthermore publications from the Federal Gazette (Bundesanzeiger) e.g. certain balance sheets; company-relevant messages from securities issuers and disclosures of the bankruptcy courts are available online. Further information can be attained through credit agencies or discreet banking channels. In Germany, bank enquiries play a significant role.

M&A in Germany

1. Deal Structure

The acquisition of a German target company in whole or in part can be structured as a share deal or as an asset deal, depending on the parties’ intentions. Transferring ownership in shares is simpler from a legal perspective than the transfer of individual assets is. In general, less documentation is needed. In case of an asset deal, as a general principal, German law requires that the individual assets and liabilities must be specified and that they transfer individually. A simple reference to the balance sheet will not suffice.

2. Transaction Process

All in all, the transaction process follows international standards. Typically, the purchaser will be given the opportunity to carry out a due diligence review. Often only the most important documents will be translated into English during the due diligence process. It should further be noted that break-up fee agreements are not common in Germany and that a party will not be liable for breaking off negotiations.

3. Transfer of Contracts; Change of Control

In the course of asset deals, agreements already in place between the target and third parties, e.g. suppliers, clients and licensors, will not automatically transfer to the purchaser; rather, the third party must consent to the transfer. When signing a share deal, it is advisable to check whether agreements with third parties contain a change-of-control clause giving the third party the right to terminate the agreement extraordinarily.

4. Precautions Regarding Intellectual Property Rights

Special steps should also be taken with regard to existing intellectual property rights. The purchaser should ensure that every relevant intellectual property right is precisely defined in the agreement in order to make sure that it will transfer properly. The purchaser should pay special attention to any warranties and indemnities the seller should be required to give regarding intellectual property. Such provisions should include the seller warranting that it owns the intellectual property rights and that it has paid all registration costs and renewal or maintenance fees.

5. Transfer of Employees

In the case of an asset deal, the employers before and after the transaction are different legal entities. All employment contracts pertaining to the business acquired normally transfer to the purchaser as a matter of law (Section 613a of the German Civil Code). Each employee has however the right to object to the transfer of his/her employment. If objecting, the employment remains with the seller as is. Also, the purchaser may not terminate an existing employment contract on the grounds of the acquisition, although the right to terminate due to other reasons remains in force.

Anti-Trust and Merger Control

Both German and European anti-trust regulations may apply. On a national level, the Act Against Restraints of Competition, as well as several guidelines and notices for the interpretation and practice of merger control in Germany, issued by the Federal Cartel Office (FCO), must be taken into account. A merger control notification must be filed if the transaction is considered a “concentration” under the aforementioned sets of rules or if the company’s turnover exceeds certain thresholds. If these conditions are met, filing of the acquisition with the Federal Cartel Office is mandatory and is subject to penalties if not filed. In addition, the investor runs the risk that the transaction may be deemed void. Parties may submit a pre-notification at a time when the merger has become sufficiently specified but a purchase agreement has not yet been signed. In general, the FCO has one month from the time it receives a notification to exert its control on the merger. After the merger, there is a duty to notify the FCO that the concentration has been carried out in accordance with the FCO’s decision.

Parties to an M&A deal should also pay attention to the competency of the European Commission, which has exclusive jurisdiction within the EU to control concentrations that have a Community dimension. In such a case, this EU competency replaces that of Germany, so that additional merger control in Germany is not required.

Germany-Specific Legal Features

Business acquisitions in Germany are governed not only by German legislation, but also by laws of the European Union which may apply. This is why successfully carrying out an M&A transaction in Germany will require tailor-made legal advice.

1. Abstraction Principle

The applicable articles of the German Civil Code set out a principle not widely known outside Germany, the so-called principle of abstraction, according to which the seller of a business enters into two legal acts at once. This principle differentiates between the contractual obligation which the seller enters into to transfer ownership in the assets or shares and the actual transfer of title. In practise, this means that the M&A agreement will usually set out two specific dates, one being the date the contractual obligation to transfer the assets or shares becomes effective, which typically is the date of signing, and the other being the date the actual transfer of the ownership in the shares takes place.

2. Data-Protection and Anti-Trust

Due to German anti-trust laws, the purchaser and the target company must act separately until regulatory approval is granted. Only after merger control clearance has been given are they permitted to share competitively sensitive information, such as pricing data and customer lists. Due to data-protection requirements, also the disclosure of employee related data is restricted before completion of the transaction. This particularly restricts the seller to disclose sensitive information of its workforce during the due diligence process. It may be advisable to employ clean teams to gather and analyse information prior to completion, allowing the management to review analyses without violating these laws.

3. Labour Law

German labour law is very protectionist and there are specific thresholds an employer should bear in mind when examining the target business’s employment structure, in order not to expose itself to employee participation rights impetuously.

The employment relationship is established by an employment contract. Numerous mandatory laws on the protection of employees apply to an employment relationship and cannot be contracted out.

There are essentially two levels at which employees and, to some extent, trade unions may exercise their influence on the employers, namely, at the shop-floor and the board level.

Taxes and Costs

The German tax system is very complex and subject to frequent change. As a rule, the seller must pay taxes on the gains received on the occasion of the business transfer. Germany signed a double taxation treaty with India on 6 May 1996, which avoids double taxation on income and capital.

In Germany, in particular acquisition of shares in a GmbH requires notarisation before a German notary public to be valid. If the purchase agreement contains a transfer of real estate, of shares or of the title in the shares, the obligation must be notarised. As a consequence, additional costs may arise.

Partner profile

Dr Martin Imhof
Dr Martin Imhof

Dr. Martin Imhof is an Equity Partner and Head of India Desk at the German law firm Heuking Kühn Lüer Wojtek. He regularly represents strategic and private equity investors in domestic and cross-border M&A transactions and investments, buyouts, divestitures, and the formation and structuring of international Joint Ventures. He advises Indian enterprises investing in Germany and coordinates outbound work for German clients going abroad.

Additionally, Martin advises companies and shareholders regarding general corporate matters, the incorporation and (re)organisation of companies including outsourcing projects, shareholder disputes and shareholder protection.

Clients appreciate Martin’s hands-on and pro-active approach. The combination of his legal excellence with a good understanding of the various commercial, cultural and legal challenges faced by Indians entering the German market makes his advice extremely valuable.

Martin is recommended as attorney in the fields of M&A by the renowned German business journal WirtschaftsWoche (Top Kanzlei 2016). Chambers Global 2016 recognised him as one of the ‘Leaders in their Field’ in Corporate/M&A, Experts Based Abroad, India.

The Dusseldorf Bar Association awarded Martin the title of a Certified Specialist Lawyer in Commercial and Corporate Law (Fachanwalt für Handels- und Gesellschaftsrecht).


  • Head of India Desk
  • Mergers and Acquisitions
  • Corporate Law
  • Joint Ventures
  • Distribution Law
  • International Supply Contracts


  • Certified Specialist Lawyer in Commercial and Corporate Law
  • Admitted to the German Bar since 2004
  • Trainee Lawyer in Hamburg and Toronto/Canada (2002-2004)
  • University of Freiburg (1995-2000; Dr. jur. 2002)

Dr. Martin Imhof Rechtsanwalt | Partner Certified Specialist Lawyer in Commercial and Corporate Law

Heuking Kühn Lüer Wojtek Georg-Glock-Straße 4

40474 Düsseldorf, Germany

Tel. +49 (0)211 600 55 246

Fax +49 (0)211 600 55 250


Firm profile

About us

Heuking Kühn Lüer Wojtek is one of the major commercial law firms in Germany rendering full multi-disciplinary legal services to German and international businesses. About 350 specialized lawyers, tax advisors and notaries practice within the firm’s eight offices in Germany (Berlin, Chemnitz, Cologne, Düsseldorf, Frankfurt, Hamburg, Munich and Stuttgart), a Belgium office in Brussels and a Switzerland office in Zurich.

As an independent national commercial law firm Heuking Kühn Lüer Wojtek is embedded in an international network of law firms without being tied to exclusivity. The firm’s lawyers are known for their pragmatic approaches, in-depth expertise in cross-border transactions and solutions tailored to the needs of their clients. The spectrum of our legal advice ranges from German and foreign mid-sized companies to international (including listed) large corporations in all matters of commercial law.

India Practice with customized advice

The increased need for advice on inbound and outbound transactions related to India is bundled in Heuking Kühn Lüer Wojtek’s India Practice. We advise our clients in collaboration with a small group of high-profile Indian commercial law firms. Since we are not bound by exclusivity agreements, we can offer our clients the best advice on an individual basis, custom-tailored to our clients’ needs. Our lawyers are familiar with the culture and circumstances in the country as a result of their many business trips to India. As we successfully support investment projects, we are continually exchanging professional and personal ideas with our Indian colleagues and hold joint client seminars. In addition, we are in close contact with the Indo-German Chamber of Commerce.

Entrepreneurial solutions for the commitment in Germany

Indian clients value our sound knowledge of the cultural and legal obstacles they face when doing business in Germany. We offer pragmatic business solutions for their interactions in Germany. Our advice ranges from legal and tax structuring of transactions and direct investments to individual questions on daily business, including matters of employment and residency law. As a full-service law firm, we are your contact for all legal matters. Upon request, we are also able to connect clients with tax advisors and auditors who can provide services in bookkeeping and payroll accounting.

Professional and individual support for your investment in India

We provide the utmost support to our German clients during their market launch in India, whether this involves establishing subsidiaries or entering into strategic partnerships and investments. In addition, we advise German clients on negotiating and concluding transactions with Indian business partners on an individual and professional basis.

The Indian trade magazine ‘India Business Law Journal’ recognized Heuking Kühn Lüer Wojtek as “Top Law Firm for India Work” in 2016 for the fourth consecutive year in the field of “Regional and Specialist Firms for India Related Business.” In addition the international handbook “Chambers Global 2016” has ranked the law firm in the field of Corporate/M&A - India: Expertise Based Abroad and members of the India Desk as “Leaders in their Field” in Corporate/M&A, Experts Based Abroad, India.

Click here to learn more about Heuking's India practice

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