TerraLex Cross-Border Guide to Cross-Border Merger & Acquisition Guide

The Federal Act on the Control of Foreign Direct Investments requires an approval by the Austrian Federal Ministry for Economy, Energy and Tourism for the direct or indirect acquisition of an Austrian undertaking by natural persons or legal entities of third state origin (outside the EU, European Economic Area or Switzerland) under certain conditions. Acquisitions subject to screening under this Act are those of undertakings in critical infrastructure sectors defined by law (such as energy, transportation, health, finance, information technology or food supply). The relevant screening factors pertain to the potential danger to security or public order triggered by the planned transaction. An approval is required under the Act in the following cases: (i) acquisition of the whole undertaking; (ii) acquisition of a specific share of voting rights (10%, 25% or 50%); (iii) acquisition of a controlling interest; or (iv) acquisition of material assets, whereby a determining influence on part of an undertaking is acquired. An approval is not required under the Act if the undertaking targeted by the acquisition is a micro-enterprise, including start-up enterprises, with fewer than 10 employees and an annual turnover or an annual balance sheet total of less than 2 million Euros.

There are also specific regulations regarding real estate and rental agreements and change of control so that these issues need to be checked in M&A transactions as notification and approval requirements can be triggered.

There are no exchange control or currency regulations, except those relating to money laundering and terrorist financing. However, sanctions and embargo rules as well as statistical reporting obligations, including reporting obligations to the Oesterreichische Nationalbank in relation to certain cross-border investments and capital movements may have to be considered.

There is a wide range of grants available in Austria to support private sector investment by foreign and domestic investors. Various schemes of grants exist for specific sectors (such as renewable energy, environmental, agricultural, infrastructural, and cultural projects) or to start a business. Grants can be awarded by different authorities such as the Austrian Republic, the federal states, or the municipalities. Grants can be awarded in the form of direct payments, tax relief, preferred loans, or general preferential conditions depending on the concrete project.

Employee representation at the level of the supervisory board, in particular, exists in limited liability companies (GmbH) and stock corporations (AG), whereby a supervisory board is al- ways mandatory for stock corporations and is mandatory in certain cases for limited liability companies (certain thresholds have to be exceeded, for example the number of employees exceeds 300). If both a supervisory board and a works council exist, 1/3 of the appointed supervisory board has to consist of members of the works council.

If an intended transaction entails significant changes to the organizational structure (including redundancies affecting a certain percentage of employees), the works council has to be consulted (provided that such works council exists). Share or asset deals without changes to the organizational structure generally do not trigger co-determination rights. In cases where the works council has to be consulted, it may force mitigating measures and may delay the transaction, but cannot hinder the transaction as such.

In an asset deal the employer has to inform the affected em- ployees correctly about the transaction and the plans that the acquirer has with the purchased assets if the transaction con- stitutes a so-called “transfer of undertaking”. In such case, the employment contracts generally transfer automatically to the purchasing entity by operation of law; however, the employees have an objection right against the transfer of their employment contract.

Employment contracts may be terminated with due notice (min- imum statutory notice or the agreed-upon notice period) or with immediate effect if serious cause is given. Also fixed-term employment contracts exist that may expire automatically with the lapse of an agreed-upon time period.

Different protections exist against dismissal for certain cases such as pregnancy, employees on parental leave, employees with severe disabilities, or if the employee is a representative of the works council.

If a works council is established, the employer must inform such works council prior to dismissal of any employee.

Employees can challenge a termination or dismissal before an Austrian court, claiming it was wrongful. A dismissal with immediate effect requires cause. Ordinary terminations may be challenged in certain circumstances, including on social grounds or if they are based on unlawful motives.

Under certain circumstances and depending on the duration of the employment contract, the employer has to make severance payments.

In addition to the aforementioned restrictions, the employer has to comply with the statutory early warning procedure, under which the employer must inform and consult with the works council and notify the competent employment agency prior to carrying out mass layoffs pursuant to the Austrian Labor Market Promotion Act. Layoffs are considered to be mass layoffs if (i) at least five employees of an undertaking of 20 to 100 employees, or (ii) at least 5% of the employees of an undertaking of 100 to 600 employees, or (iii) at least 30 employees of an undertaking of more than 600 employees, or (iv) at least five employees who are older than 50 years are to be dismissed within a period of 30 days. If the employer fails to comply with this statutory early warning procedure, the dismissals will be deemed invalid.

Employees who are made redundant are entitled to unemployment benefits, which are paid by the Austrian employment agency.

Tax charges triggered by sale of shares vary depending on the legal form of the target and the seller. The sale of shares in limited liability companies (GmbH) and stock corporations (AG) are, in principle, tax exempt. Profits resulting from the sale of shares are in principle subject to a 23% corporate tax for corporate sellers and to a 27.5% capital gains tax for individual sellers. If special conditions are fulfilled (e.g., the involvement of foreign shares), it is possible that also the resulting profits are tax exempt.

Taxation of asset sales again varies depending on the legal form of the seller. If the seller is a limited liability company or a stock corporation, profits resulting from the sale will be subject to corporate tax of 23%. Different taxes apply if the assets are sold by individuals. The sale of real estate triggers real estate transfer tax (3.5%) and a registration fee (1.1%). Also, the sale of shares in companies holding real estate may trigger real estate transfer tax.

A transaction has to be notified to the Austrian Federal Competition Authority (Bundeswettbewerbsbehörde) if the following conditions are met and no exception otherwise applies:

• the combined worldwide aggregate turnover of all participating undertakings in the year prior to the transaction was more than €300 million;
• the combined domestic aggregate turnover of all participating undertakings in the year prior to the transaction was more than €30 million, of which at least two companies have more than €1 million turnover each; and
• the worldwide turnover of at least two participating undertakings each was more than €5 million in the year prior to the transaction.

The transaction does not need to be notified if:

• only one independent undertaking has a domestic turnover of over €5 million, and
• the other participating undertakings' combined worldwide aggregate turnover in the year prior to the transaction does not exceed €30 million.

Special rules on turnover calculation exist for the media and banking sectors.

If the transaction has to be notified to the European Commission, a notification to the Austrian Federal Competition Authority is not necessary.

Transactions that involve transfers of shares in limited liability companies (Gesellschaft mit beschränkter Haftung - GmbH) need to be executed in the form of a notarial deed. Common documents include the acquisition agreement, employment agreements for key personnel, transitional services agreements, resignation letters of the existing management, closing memorandum, and notification of the new shareholders to the commercial register in the event of the sale of a GmbH.

No, this is generally a matter of negotiation between the parties. If a filing under competition law, the Foreign Trade Act or the EU Foreign Subsidies Regulation is necessary, there will need to be a gap between signing and closing.

In most transactions public notaries are used to receiving and transferring funds, which will require the undertaking of KYC checks.

The representatives of Austrian undertakings who are authorized to sign are listed in the undertaking's entry in the Austrian Commercial Register. The presentation of identity cards is common practice. Notary publics involved usually require identity cards.

Sales of shares in companies or sales of assets require a specific form/contract in which certain mandatory information has to be included. Depending on the concrete contract, the notarization of certain documents would also be mandatory. Among others, sales of real estate as well as the transfer of shares in limited liability companies require specific notarial requirements. For M&A transactions, given that most Austrian targets are in the form of a limited liability company, the share transfer document must be executed in the form of a notarial deed.

A company is represented by its statutory representatives (managing directors, procurators) who are listed in the company's excerpt of the Commercial Register. These representatives act on behalf of the company and execute all documents/contracts on behalf of the company. The statutory representatives may authorize an employee or a third party (such as an attorney) to sign on behalf of the company. Depending on the specific authorization, the representatives may either solely or jointly sign with a second representative to represent the company.

For certain agreements (such as share purchase agreements of shares) a written contract is mandatory and, in the case of a transfer of shares in a limited liability company, this must be done in the form of a notarial deed. A written contract has to be signed by the authorized representative. It is also very common that the signatory initials each page of the contract.

The formalities for the execution of documents by foreign companies are the same as for domestic companies as long as the signatories can provide evidence of their authorization to do so. In specific cases documents need to be notarized and apostilled in order to be recognized by the Austrian authorities. Austrian authorities (such as the Commercial Register) only admit documents in the German language, which is why either bilingual contract forms or translations by authorized translation offices often are required.

Specimen signatures have to be notarized as well as changes to the articles of association of a limited liability company or the general shareholders' resolution of a stock corporation. Austrian law provides the option for digital notarial acts, including digital notarial protocols (e.g., for shareholders' meetings), digital notarial deeds (e.g., for share transfer agreements), and the notarization of signatures. All of these notarial acts can be completed online without the need for direct physical presence.

No, a notary cannot change the terms of the deal.

The notary's fees are determined in the Notary's Fees Act (Notariatstarifgesetz) and usually depend on the amount of the transaction. Some notaries also operate with lump sums for their services.

No, a notary does not have an impact on the timetable.

These are standard filings with the relevant Commercial Registry. Court fees are triggered, but no tax as such as a result of the filing.

For the transfer of shares in a stock corporation a notarial deed is not required; bearer shares can be transferred without special formal requirements, whereas the transfer of registered shares has to be registered in the share register of the company.

With effect from 1 January 2024, Austria introduced a new legal entity: the Austrian Flexible Company. This entity was specifically created to cater to the needs of start-ups, although it is available to all businesses, offering a modern and adaptable legal structure. The Flexible Company also allows for a simplified transfer of shares, with no notarial deed required.

An individual/company can issue a power of attorney to a third person to execute documents on its behalf. If there are formal requirements for the signing/closing (for example a notarial deed), the respective power of attorney also has to comply with this formal requirement (and in the given case would have to be notarized and, depending on the country of signature, apostilled). Further, Austrian law provides the option for digital notarial acts.

No. Restrictions depend on the specific terms of the power of attorney. In any case, a power of attorney holder cannot delegate more powers than he/she has on his/her own.

A faxed document could be admissible in court as evidence of due execution but could be more easily contested by the other party if no other evidence is provided.

Legislation has been enacted that provides for the admissibility of digital signatures as evidence of execution. Under the EU eIDAS framework, qualified electronic signatures generally have the legal effect of handwritten signatures. However, electronic signatures do not by themselves replace Austrian notarization requirements, notarial deed requirements or other mandatory execution formalities.

Yes. The counterparts will then be taken together as evidence of the agreement.

Typically lawyers do not give "undertakings" but rather notaries public act as escrow agents.

Everything depends on what has been agreed upon between the parties, usually in the acquisition agreement in which undertakings are commonly subject to fulfillment of formalities or events. However, there is no specific mechanism and the parties can organize the closing as they wish. For share transfers in limited liability companies, which is the dominant company form in Austria, typically both the signing of the SPA as well as the Closing Memorandum are completed in the form of a notarial deed due to the strict Austrian jurisprudence on form requirements.

With regard to a stock corporation, it depends on the nature of the shares that are sold and whether the stock corporation is listed on the stock exchange. Registered shares have to be registered in the share register. In case of change of control of the company, it is likely that various forms will need to be filed with the Austrian Commercial Register (such as change of directors, change of registered office, change of auditors, or the change of the shareholder).

With regard to limited liability companies, changes (such as change of shareholders, managing directors, the registered office, changes of the legal name) have to be registered with the Commercial Register.

No, these are not required.

The Beneficial Owners Register Act provides a comprehensive list of legal entities subject to its provisions. Any person holding more than 25% in a company, whether directly or indirectly, is considered a beneficial owner. Apart from reaching this threshold of participation in the company, a person is also considered a beneficial owner if they exercise control over the company – for example, by owning 20% of the shares but holding 60% of the voting rights. A legal entity can have several beneficial owners. Legal entities are obligated to identify their beneficial owners and report them to the Register of Beneficial Owners. A notification is also required when ownership of a legal entity changes or when a legal entity is first registered in the Commercial Register. Therefore, a submission to the Register of Beneficial Owners is required in a typical 100% M&A acquisition, unless the target benefits from a statutory reporting exemption.

There is no typical timetable for share and asset sales as this depends on the concrete circumstances. Sales of shares or assets can take anywhere from one month to one year from the beginning of negotiations to completion, depending on the complexity of the transaction and the negotiations between the parties. In addition, external factors (such as the level of required diligence, informing and consulting employees, regulatory clearance, change of control consents) can affect the transaction's timetable.

Non-compete clauses agreed upon in M&A transactions generally are enforceable against sellers for a time period of two years from the date of closing, and three years in special circumstances. Non-compete agreements for employees can be agreed upon for a maximum time period of one year from the termination of employment, , subject to the applicable statutory requirements, including remuneration-related and reasonableness requirements.