In an asset deal, you take over specific obligations that transfer by operation of law, including employment contracts when there is a transfer of undertaking under section 7:662 of the Civil Code. Contractual obligations only transfer with the explicit agreement of all parties. This selective transition offers more control than a share deal, but requires careful analysis of which obligations automatically come with you.
What is the difference between an asset deal and a share deal in acquisitions?
In an asset deal, you buy specific assets and liabilities of a company, while in a share deal the shares of the legal entity are acquired. This fundamental difference determines which liabilities pass automatically.
An asset deal offers selectivity. You choose which assets, contracts and liabilities to take over. Unwanted liabilities remain with the seller. Property-intensive transactions involve transfer tax, with rates of 2% for principal residence and 10.4% for commercial property in 2025.
A share deal means automatic transfer of all rights and obligations. You become the owner of the complete legal entity including all known and unknown liabilities. Share deals avoid transfer tax because no direct property is transferred, except under anti-abuse rules for property companies.
The choice between the two structures depends on risk tolerance, tax considerations and the desired degree of control over assumed liabilities.
What obligations do you automatically assume in an asset deal?
Employment contracts automatically transfer when there are transfer of undertaking according to Article 7:662 to 666 of the Civil Code. This happens regardless of whether you want it to and cannot be contractually excluded.
Three criteria apply to transfer of undertaking: an economic entity must be transferred, transfer must be by agreement, and the identity of the entity must be preserved. Case law uses the Spijkers criteria to determine whether identity is preserved, including nature of business, transfer of assets, takeover of staff and customer base.
For labour-intensive services, taking over staff weighs heavily in the assessment. Not all criteria have to be met - the assessment is factual on a case-by-case basis.
Other obligations do not transfer automatically. Contractual liabilities, supplier contracts and financial obligations require explicit agreement from all parties involved. Legal obligations such as environmental liability may do transfer depending on specific legislation.
How can you protect yourself from unknown liabilities in an asset deal?
Thorough due diligence forms the basis for protection against unknown liabilities. Examine all relevant aspects: financial, legal, tax, labour and operational to identify potential risks.
Contractual protection mechanisms provide additional security:
- Warranties and indemnities where seller accepts liability for specific risks
- Escrow arrangements in which part of purchase price is held for potential claims
- Price adjustment mechanisms based on actual balance sheet positions at closing
- Specific exclusions of certain assets or liabilities
Insurance can cover residual risks. Warranty & indemnity insurance protects against breach of warranties. Environmental liability insurance covers environmental risks.
Timing plays a crucial role. Ensure sufficient time between signing and closing to conduct additional research and fulfil conditions.
What happens to employment contracts in an asset deal?
Employment contracts transfer by operation of law on transfer of undertaking, including all labour law obligations such as accrued holidays, seniority and dismissal protection. The employee retains the same legal status.
Pension entitlements require specific attention. Accrued rights in industry pension funds remain, but joining a new pension fund may be necessary. This may lead to different pension schemes for acquired and existing staff.
Social security obligations come with you. You become responsible for correct payroll tax and contribution payments. Any arrears to the vendor may lead to liability.
Collective agreement obligations remain in force during the term of the collective agreement. Different collective agreements between buyer and seller create complex situations that require legal guidance.
Employee participation plays a role. For significant changes, the works council should be consulted within reasonable time, practically 6-8 weeks for complex transactions.
What role does due diligence play in identifying liabilities?
Due diligence systematically identifies all potential liabilities and risks prior to the transaction. This process determines which liabilities you take over and what protection mechanisms are needed.
Legal due diligence analyses contractual obligations, disputes, compliance issues and regulations. Labour law aspects receive special attention due to automatic transfer in the event of a transfer of undertaking.
Financial due diligence examines hidden liabilities such as provisions, guarantees and off-balance sheet commitments. Tax due diligence identifies potential tax claims and compliance risks.
Operational due diligence looks at environmental liabilities, supplier contracts and operational risks that could have a financial impact.
The quality of due diligence determines the effectiveness of warranty and indemnity negotiations. Thorough analysis leads to better risk allocation and pricing.
How do you negotiate the allocation of liabilities in an asset deal?
Negotiations on liability allocation begin with clear risk allocation based on due diligence findings. Determine which risks are acceptable and where protection needed.
Structure guarantees specifically and measurably. General guarantees offer less protection than detailed statements on specific aspects such as compliance, disputes and financial obligations.
Indemnity schemes cover different risk categories:
- Tax and premium liabilities with specific thresholds and ceilings
- Employment law claims with focus on transfer of undertaking
- Environmental liabilities with time limits
- Contractual liabilities for existing agreements
Price adjustment mechanisms compensate for deviations in working capital, debt or other balance sheet items between signing and closing.
Timing and limits of liability should be realistic. Standard survival periods range from 12-24 months for general guarantees to 6-7 years for tax cases.
Professional guidance in M&A transactions ensures balanced risk allocation that is workable for both parties. Experienced advisers structure deals that achieve commercial objectives within acceptable risk frameworks. For complex asset deals where obligation allocation is critical to transaction success, take contact on for strategic guidance.
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