Notarisation of SPA or APA
In any strategic M&A or private equity transaction with a German company as target, the parties are faced with the question in the run-up to signing whether the purchase agreement (SPA or APA) has to be read to the parties before by a German notary public. Especially for foreign stakeholders, this notarisation requirement and the function of the notary public is a peculiarly feature of German law with implications for the signing process as well as for the costs of the transaction.
A. Notarisation requirement
The need for notarisation may exist irrespective of whether the target company is to be acquired via share deal or asset deal.
- In the case of a share deal, notarisation is required if a German limited liability company (GmbH) is the target company. The obligation to assign (Sec. 15 para. 4 German limited liability company code, GmbHG) and the assignment in rem (Sec. 15 para. 3 GmbHG) of shares in a GmbH require a contract concluded in notarised form. According to the established case law of the German Federal Court of Justice (BGH), this requirement is intended to make a transfer of GmbH shares more difficult and, in addition, facilitate the proof of share transfers.
- In the case of an asset deal, notarisation is required if real estate or property located in Germany is to be transferred as part of the transaction. Furthermore, it is disputed whether the asset deal is generally subject to a notarisation requirement as a result of Section 311b para. 3 German Commercial Code, BGB. The relevance of this legal discussion follows from the lack of a possibility to cure a violation of Section 311b BGB. According to a persuasive opinion, the general notarisation in the case of an asset deal is not required though if the transferring assets are expressly and conclusively listed in the sale and purchase agreement. Particular attention should be paid to the use of catch-all clauses, which are not uncommon in the context of asset deals and may require the involvement of a notary.
The sale and assignment of shares in a German stock corporation (AG), on the other hand, is possible without notarisation, as is the transfer of interests in a limited partnership (KG, OHG or GbR).
B. Notarisation on site
Although the Digitalisation Directive is a first step towards virtual notarisation from 1 August 2022, a notarised acquisition of a business in Germany must still be read out by a German notary to the parties or their representatives (authorised representatives) present. This means that at least one representative of each party to the contract must be physically present in the presence of the notary in order for the formalised notarisation procedure to take place. A subsequent approval by a party present before the notary but not duly represented is possible, but increases the uncertainty of the other party with regard to the security of the transaction and is therefore the exception.
On the other hand, the power of attorney of a representative for the conclusion of the SPA/APA does not require a notarial form, although in practice the parties will expect a notarised signature on the power of attorney as a precaution.
C. Duties of the notary
Notarisation of the SPA/APA not only limits the parties' freedom of choice as to the procedure for signing the agreement, but also increases the amount of coordination required prior to signing. With the notary public, the transaction is extended by a party whose legal assessment of the contracts and assets, and generally whose availability, must be planned for.
The notary public must ensure that the contract complies with legal requirements. In the contract, the notary is obliged to identify the parties involved and the persons acting on their behalf. In particular
- proof of the existence and legal capacity of each contracting party, as well as
- verify the power of representation of each person appearing.
In the case of German companies as contracting parties, these issues can be resolved in an uncomplicated manner via the German commercial register. In the case of foreign companies as contracting parties, depending on the jurisdiction, more time or additional effort may be required.
Furthermore, the notary, as an obligated party under the Money Laundering Act, is obliged to check the beneficial owners behind the contracting parties in advance..
The payment of the notary costs by the purchaser can be considered as a common market practice. This must be taken into account when planning the transaction costs.
Notary fees are formally determined according to the value in dispute and can be estimated, for example, here (link to fee calculator | Notar.de). The general maximum amount for the value in dispute in the notarisation procedure is EUR 60,000,000.00. Based on this amouint, notary fees of EUR 53,170.00 (plus VAT, if applicable) are incurred, based on the typical fee for sale and purchase agreement. This amount is usually increased by further ancillary fees.
In the case of additional fees, there are always two constellations to be taken into account in the context of sale and purchase agreements, unless the maximum value pf the business value has been reached:
- The execution of the notarisation procedure in a foreign language increases the transaction value by 30%.
- The agreement of a choice of law clause that is not merely declaratory also increases the transaction value by 30%.
E. Completeness of the deed - consequences for typical ancillary agreements
The notarial deed must contain all the relevant agreements relating to the transaction made between the contracting parties. In the case of the purchase of a company, in addition to the definition of the object of purchase and the determination of the purchase price, there are, of course, a vast number of other agreements, such as guarantees relating to the sold company or the obligations of the parties until closing.
All ancillary agreements between the contracting parties in the context of the transaction which, according to the will of the parties, are essential to the purchase agreement or are inseparably connected with it as part of an overall agreement must be notarised.
Typical areas of discussion regarding notarisation in the context of SPA/APA are:
- Financing commitments or equity commitment letters of third parties, with which the acquisition company secures the payment of the purchase price vis-à-vis the seller, do not need to be notarised, since the seller will not make the effectiveness of the sale and purchase agreement dependent on the financing of the purchase price as part of the buyer's sphere of risk.
- The W&I insurance to secure the buyer’s warranty and indemnity claims under the sale and purchase agreement does not generally need to be notarised either. The seller usually has no interest in the invalidity of the S&I insurance negotiated and concluded by the buyer affecting the validity of the sale and purchase agreement, so that there is usually a lack of uniformity of intent approved by the seller.