Selling a Shareholding: Share, Silent Partnership or Minority Stake

Transferring a shareholding does not hand over the business, only a piece of it — as a Geschäftsanteil in a GmbH (a share in an Austrian limited company), as a limited partnership interest, or as a stille Beteiligung (a silent partnership interest). What the sale yields, and how it runs, depends less on the price than on two questions: what form the interest takes, and how much control moves with it.

Where only part of the equity changes hands, our approach to selling a shareholding applies.

Where all the shares are to change hands instead, selling a GmbH describes that route; and if the task is to find a buyer for your interest, finding an investor sets out how we get there.

"Selling a shareholding" sounds like a single, uniform exercise. It is not. A majority share in a GmbH follows different rules from a typical silent contribution, and a minority package is often worth less in the market than its percentage suggests. This article sorts the forms and shows what matters when selling each of them.

Owners giving up their own stake in the company will find the overview of minority, majority and partial sales in selling company shares. Here we go one level deeper: to the shareholding as such — including the silent and atypical silent forms that do not take centre stage there.

Which shareholdings can be sold

The term shareholding covers several legal forms with very different routes to a sale.

Form	What you hold	Transfer
GmbH-Geschäftsanteil (share in an Austrian limited company)	corporate share with voting rights	in Austria a Notariatsakt (an Austrian notarial deed), often subject to the consent of the co-shareholders
Interest in an OG or KG (Austrian general or limited partnership)	partnership interest	consent of all partners, amendment of the Firmenbuch (the Austrian companies register)
Shares in an AG (Austrian stock corporation)	securities	no particular form, or by securities account transfer; consent required for restricted registered shares
Typisch stille Beteiligung (typical silent partnership)	a pure right to a share of the profit	only with the consent of the business owner, usually by way of termination
Atypisch stille Beteiligung (atypical silent partnership)	co-entrepreneur status including hidden reserves	as above; treated for tax purposes like a business interest

The legal form governs the formalities, the consents required and the tax. Ignore it, and you negotiate a price you cannot formally deliver.

Open or silent: the difference when selling

A silent partnership is not a share in the usual sense. The silent partnership under §§ 179 ff UGB is a pure internal partnership: it has no legal personality, does not appear in the Firmenbuch, and externally only the owner of the business is liable. The silent partner contributes capital and receives a share of the profit in return. How such a silent partnership is set up in the first place is covered in a separate article.

That has consequences for a sale. A silent interest cannot simply be assigned to a third party. Because the shareholding is a contractual relationship with the owner of the business, any transfer requires his consent. In practice a silent partnership is therefore rarely "sold"; it is terminated, and the silent partner is paid out his settlement credit.

The decisive point lies in the type of silent partnership. In the typical form, the settlement credit is limited to the contribution plus outstanding profit shares. In an atypical silent partnership the partner participates in the goodwill and in the hidden reserves — here a real share of the enterprise value is at stake, and valuation becomes a negotiating issue just as it would with a genuine corporate share.

Why a minority stake is worth less than its percentage

A buyer rarely pays a minority holder the pro-rata share of the total value. A 25 per cent package is regularly worth less in the market than a quarter of the enterprise value. The reason is simple: without a majority you can neither force distributions, nor set the strategy, nor determine the timing of an exit.

How large that minority discount turns out to be cannot be stated as a blanket figure. It depends on the rights anchored in the articles of association — on information rights, veto rights and tag-along rights. A minority shareholder with a contractually secured tag-along right is in a markedly better position than one without. Anyone selling a minority is in truth selling a bundle of percentage and rights. Percentage figures quoted without a look at the contract are not to be trusted.

For the pricing itself, the same methods apply as for the business as a whole — usually the market approach via multiples. The overview of the methods is in company valuation.

Consent, pre-emption rights, form: the contractual hurdles

Before a price is discussed, it is worth looking at the articles of association. Three clauses decide whether, and to whom, you may sell at all.

Consent requirement: many GmbH articles make the assignment of a share conditional on the approval of the shareholders meeting or of the co-shareholders.

Call options and pre-emption rights: the remaining shareholders frequently have the right to take the share first and on predefined terms. An external buyer only gets his turn once nobody has exercised.

Form: in Austria the assignment of a GmbH share requires a Notariatsakt. The details of the procedure are set out in selling a GmbH share.

Clarify these points early and you negotiate realistically. Ignore them and you risk a fully negotiated deal failing on a co-shareholder pre-emption right.

What the sale triggers in tax terms

The tax treatment follows the form of the shareholding.

A GmbH share held privately is subject in Austria to the special tax rate of 27.5 per cent on the capital gain. The mechanics and a worked example are in selling a GmbH: tax.

An atypical silent partnership counts for tax purposes as a co-entrepreneur interest. The gain on disposal is treated like the sale of a business — with the reliefs for the allowance, the half average tax rate or the three-year spread that are explained in tax on the sale of a business.

A typical silent partnership, by contrast, falls under investment income; the settlement credit paid out is captured accordingly. Because the line between typical and atypical silent partnerships can be worth tens of thousands of euros in tax, that classification belongs before the sale — not after it.

Who buys a shareholding

The pool of buyers differs according to size and form. Co-shareholders step in when a partner exits and no outsider is wanted on board. Financial investors take minority stakes with clearly negotiated rights. A strategic buyer is usually only interested from a majority upwards — the differences are shown in strategic buyer or financial investor. And where the existing management takes over, the route runs via a management buy-out.

Which types of investor actually take stakes, and how they are approached, is covered in investors looking for a shareholding. The rights and obligations set out in the participation agreement are described under the shareholders agreement on an investor entry.

FAQ

Can I sell my GmbH shareholding without the consent of my co-shareholders?

Only if the articles of association allow it. Many articles tie the assignment to the consent of the co-shareholders or give them a call option. Check the contract before you negotiate with an external buyer.

How do I sell a silent partnership?

A silent partnership is a contractual relationship with the owner of the business and cannot be freely assigned to third parties. The usual route is termination with payment of the settlement credit; a transfer requires the consent of the business owner.

Is a minority stake worth its pro-rata share?

Usually not. Because a minority conveys no control, buyers often apply a discount. How large it is depends on the contractual rights — for example veto or tag-along rights.

What tax arises on the sale of a shareholding?

For GmbH shares held privately, 27.5 per cent on the gain. An atypical silent partnership is taxed like the sale of a business; a typical silent partnership under the rules for investment income.

What is the difference between a typical and an atypical silent partnership?

A typical silent partner holds a pure right to a share of the profit, and the settlement credit is limited to the contribution plus outstanding profit shares. An atypical silent partner also participates in the goodwill and the hidden reserves, which puts a real share of the enterprise value on the table.

Does the form of the shareholding change how it is valued?

The valuation methods are the same as for the business as a whole, usually the market approach via multiples. What changes is what is being valued: a share in the enterprise value in the case of corporate shares and atypical silent partnerships, and a contractual settlement claim in the case of a typical silent partnership.

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Considering a partial sale or an exit from a shareholding? Discuss the process in confidence — IGCP Capital Partners. igcp.at