The Share Purchase Agreement (SPA) in Germany

Why is the contractual liability regime so important?

In a share deal, the buyer legally acquires shares. The target and its assets and liabilities remain in place. Statutory sales law provides only limited and fact-specific protection for the condition of the business. The SPA therefore defines independently which statements the seller stands behind and the consequences of inaccuracy.

The agreement should distinguish between:

The starting point is formed by fundamental warranties on existence, title, authority and capitalisation and business warranties on the operating company. Tax warranties and the tax covenant are commonly dealt with separately, while specific identified risks are allocated through bespoke indemnities.

Covenants govern conduct before and after closing. Disclosure and knowledge qualifications determine which information excludes or limits claims. Thresholds, caps and time limits form the general liability regime. W&I insurance may transfer part of the economic exposure to an insurer without removing every element of residual seller liability.

Section 442 BGB concerns statutory defect remedies where the buyer has knowledge. It does not automatically decide claims under an independent contractual warranty. Those depend on the SPA's knowledge and disclosure regime.

Due-diligence knowledge therefore has no universal effect. Some agreements recognise only specific disclosure in a disclosure letter; others include the entire data room or preserve selected warranties regardless of knowledge. This architecture should be negotiated deliberately.

What belongs in the warranty catalogue?

The warranties reflect the business model and diligence risk. Typical areas include:

The corporate foundations include legal existence, capital structure and title to the shares. Financial warranties address the financial statements, management accounts and material changes since the reference date.

For the operating business, the catalogue covers material customer, supplier, financing and other contracts and the title, encumbrances and condition of key assets. Depending on the business model, IP, IT, cyber and data protection and employees, management and pensions follow.

Further areas include permits, compliance, sanctions and export controls, environmental matters, product liability and insurance, litigation and tax. The catalogue should not be made long for its own sake; it should reflect the actual value drivers and risk profile of the target.

Each warranty needs a time reference. Statements may apply at signing, closing or both. A bring-down at closing also requires a process for matters becoming known in the interim.

Knowledge qualifications should specify:

A knowledge qualification should identify whose actual knowledge counts and whether those individuals are required to make reasonable enquiries. It should also state which additional persons must be consulted and whether attributed knowledge or negligent ignorance is relevant.

The seller seeks protection through materiality, knowledge and disclosure; the buyer ensures that qualifications do not hollow out the statement. Fundamental warranties are generally more objective and survive longer than business warranties.

What does the buyer need indemnities for?

An indemnity allocates a specifically identified risk. It is particularly useful where the facts are known but the occurrence or amount of loss remains uncertain, for example:

Common examples include tax audits, environmental contamination, pending litigation and missing permits. Identified compliance issues and allocation questions in a carve-out can be addressed in the same way.

The mechanism also suits customer or product claims caused before closing where the economic consequence arises later. The indemnity can then attach precisely to the known facts without stretching the general warranties artificially.

A known risk can also be addressed through a warranty, price reduction, escrow or specialist insurance. An indemnity is not legally mandatory, but it often provides the clearest allocation because trigger, defence, payment and duration can be tailored.

The clause should address the beneficiary, covered loss and tax, insurance and tax-benefit offsets, control of third-party claims, cooperation, cap and duration, interaction with general limits and security.

The tax covenant should be aligned with control of tax proceedings and actual limitation periods. Simple fixed periods may be inadequate where suspension rules or later audits extend the exposure.

Locked box or closing accounts: how is the purchase price set?

The company value the parties name is almost never the amount that actually changes hands. What is usually negotiated is a debt-free, cash-free value, the enterprise value. From it you deduct net financial debt, that is financial liabilities less available cash, and adjust for the deviation of net working capital from an agreed normal level. Only then do you arrive at the equity value, the figure the buyer actually pays. The central question is which reference date and which figures this bridge rests on. Two models are on offer.

With closing accounts, a balance sheet is drawn up as at the completion date. Net debt and net working capital are determined as at that day, and the purchase price paid on a provisional basis is adjusted afterwards, as a rule euro for euro. The economic risk in the target thus passes to the buyer only on the completion date. The price is exact, but it is not final until weeks after closing, and the figures are then often still fought over.

The locked box reverses the logic. The purchase price is fixed as at a past reference date, usually the last audited financial statements, and is not adjusted thereafter. The buyer already carries the company's economic result from that locked-box date, even though it only takes the business over later. To stop the seller stripping value out in the meantime, the contract prohibits any so-called leakage: distributions, inflated managing-director remuneration, payments to related parties. Only expressly named items are permitted, the permitted leakage, such as payments under ordinary trading relationships.

The seller often receives interest on the purchase price for the period between the reference date and completion. Because the price stands from the outset, the locked box is the preferred mechanism in auction processes and private equity transactions, where bids have to stay comparable.

Closing accounts, by contrast, remain the usual choice in bilateral deals and for complex target structures where precision as at the completion date matters.

Alongside this basic mechanism, further clauses move the amount that actually changes hands. Part of the purchase price can be held back in an escrow account to secure later warranty claims. A variable part tied to future earnings is dealt with through an earn-out. And in case a material deterioration occurs between signing and completion, a MAC clause gives the buyer a right to walk away or adjust. These three instruments are the subject of their own articles; for the purchase price it is enough here to choose the right basic mechanism, because it decides who bears the result of the interim period.

How can the seller's liability be limited?

The regime combines several layers:

At the lower end, a de-minimis threshold excludes individual minor claims. The basket aggregates the remaining claims and determines whether the whole amount or only the excess becomes recoverable. The cap fixes maximum liability for each claim category, while separate time limits apply to business, fundamental and tax claims.

The loss definition deals with indirect loss, lost profit, multiple-based damages and internal cost. No-double-recovery and mitigation provisions prevent duplicate compensation and give credit for loss that could be avoided or is recovered elsewhere.

Knowledge and disclosure rules determine which matters fall outside the seller regime. An exclusive-remedy clause is intended to make the contractual remedies comprehensive, subject to mandatory limits, particularly for fraud and deliberate misconduct.

Market positions vary materially by deal size, seller type, diligence, competitive tension and W&I. Generic percentage ranges therefore have limited value.

Mandatory boundaries remain. Liability for intent cannot be excluded in advance, and fraud and deliberate misstatement are normally carved out. In a W&I structure, the buyer may retain policy protection while the insurer has recourse against a fraudulent seller.

Claims procedure matters as much as the figures. Notice requirements should be clear without allowing valid claims to fail on disproportionate formalities.

Does the purchase agreement need to be notarised?

For GmbH shares, both the transfer and the obligation to transfer require notarisation. The form requirement extends to the connected legal obligations where the parties intend them to stand or fall together.

The SPA, relevant schedules and ancillary documents should therefore be structured with the notary early. Depending on the arrangement, documents may be read, incorporated by reference or signed outside the deed. The key is that no form-dependent obligation is improperly separated. Unclear document architecture can create enforceability risk.

An asset purchase agreement has no universal notarial form, but real estate, GmbH shares, certain reorganisations or an undertaking to transfer all present assets may trigger it. Form analysis belongs at the beginning of document planning, not in the final signing week.