Mergers & Acquisitions Comparative Guide –

1 Deal structure

1.1 How are private and public M&A transactions typically
structured in your jurisdiction?

As there is no national stock market in Liechtenstein, public
M&A transactions are very uncommon. M&A transactions are
generally carried out as either a share deal or an asset deal. In
some cases, there are mixed forms or an asset deal is carried out
prior to a share deal.

In a share deal, the buyer acquires all or part of the shares in
the target. The buyer therefore does not acquire the assets and
liabilities of a business directly, but indirectly by taking over a
participation in the target. In an asset deal, on the other hand,
the assets and liabilities forming the target itself are
transferred directly; the buyer becomes the owner of the operating
business respectively the assets and liabilities. Most M&A
transactions in Liechtenstein are conducted as share deals.

Mergers of stock corporations (Aktiengesellschaften)
are governed by Articles 351 and following of the Persons and
Companies Act. The admissibility of mergers of other legal entities
is regulated by the provisions of the respective legal entity
– for example:

• Article 424 of the Persons and Companies Act for a limited
  liability company (Gesellschaft mit beschränkter
  Haftung); and




• Article 550 of the Persons and Companies Act for an
  establishment (Anstalt).

The conversion of a stock corporation into a limited liability
company as the legal successor is regulated by Article 425 of the
Persons and Companies Act. Again, conversions regarding other legal
entities are regulated by the provisions governing the respective
legal entity.

1.2 What are the key differences and potential advantages and
disadvantages of the various structures?

Whereas in a share deal the buyer acquires shares in an entity
that owns the operating business, in an asset deal the buyer
acquires the operating business and its assets and liabilities. One
disadvantage of share deals is that all liabilities and obligations
of the acquired company are transferred to the buyer. This can,
under certain circumstances, expose the buyer to a liability risk
that was not apparent at first sight. On the other hand, an asset
deal has several disadvantages, in particular due to its
complexity: the tangible assets, rights, obligations and contracts
must all be individually named and transferred in the deal, for
which the formal requirements must be complied with and, under
certain circumstances, the consent of third parties must also be
obtained. However, in an asset deal, the buyer is aware of the
assets and liabilities that are envisaged to be taken over due to
the precise designation of the purchase objects, which can thus
minimise the risk.

Liechtenstein law does not contain a rule similar to Section 38
of the Austrian Business Code, according to which a purchaser that
continues to operate a business assumes the seller’s
business-related relationships. However, under Liechtenstein
corporate law, anyone that takes over an asset or a business with
assets and liabilities will automatically be liable to the
creditors from the associated debts as soon as the takeover has
been notified to the creditors by the assignee or announced in a
public bulletin. In this case, the previous debtor will still be
jointly and severally liable with the new debtor for a period of
two years, which begins with the notification or public notice and,
in the case of receivables due at a later date, with the due date
(Section 45 of the Final Part of the Persons and Companies
Act).

1.3 What factors commonly influence the choice of sale
process/transaction structure?

Share deals are often preferred over asset deals because they
are, in principle, considered to be simpler and quicker. However,
other factors such as taxes and regulatory requirements also play a
role when deciding which form of transfer to choose.

2 Initial steps

2.1 What documents are typically entered into during the
initial preparatory stage of an M&A transaction?

During the preparatory phase, the parties to an M&A
transaction often conclude a letter of intent (LoI), a
confidentiality agreement and/or an exclusivity agreement. In an
LoI, a memorandum of understanding or a term sheet, the parties
record the main points of the intended contract. However, the LoI
is usually not intended to have any binding effect in its entirety.
Only parts of the LoI, such as those relating to confidentiality
and exclusivity, may be legally binding.

Under a confidentiality agreement, the parties agree to keep
confidential:

• any information they become aware of during the contract
  negotiations;




• the terms of the agreement; and




• the results of a due diligence review.

In addition, the relevant documents are to be returned or
destroyed if the M&A transaction will not be carried out.

An exclusivity agreement obliges the potential seller not to
negotiate with other parties.

2.2 Are break fees permitted in your jurisdiction (by a buyer
and/or the target)? If so, under what conditions will they
generally be payable? What restrictions and other considerations
should be addressed in formulating break fees?

Break fees serve as transaction security and oblige one of the
parties to make payments to the other party in the event of a
breach of contract or other specified circumstances. Such
agreements are permissible under Liechtenstein law within the
general limits of freedom of contract (private autonomy). If the
agreed break fees are disproportionately high, the court may order
a reduction.

2.3 What are the most commonly used methods of financing
transactions in your jurisdiction (debt/equity)?

Both debt and equity financing are popular methods of financing
an M&A transaction in Liechtenstein. The choice of financing
form depends on various factors, such as the amount of equity and
tax considerations. However, it cannot be assessed that either one
of these methods of financing is preferable to the other in
Liechtenstein.

2.4 Which advisers and stakeholders should be involved in the
initial preparatory stage of a transaction?

Since critical and secret information may be discussed in the
preparation phase, the parties usually involve only a small circle
of people. However, legal and tax advisers should definitely be
consulted in the preparation phase. With regard to the
stakeholders, the respective management and the potential lenders
should participate in these negotiations in addition to the seller
and buyer.

2.5 Can the target in a private M&A transaction pay adviser
costs or is this limited by rules against financial assistance or
similar?

Within the framework of freedom of contract (private autonomy),
the contracting parties are, in principle, free to allocate the
costs as they wish. However, there are various restrictions arising
from tax, corporate and insolvency regulations whose violation may
in some cases be sanctioned under criminal law.

3 Due diligence

3.1 Are there any jurisdiction-specific points relating to the
following aspects of the target that a buyer should consider when
conducting due diligence on the target? (a) Commercial/corporate,
(b) Financial, (c) Litigation, (d) Tax, (e) Employment, (f)
Intellectual property and IT, (g) Data protection, (h)
Cybersecurity and (i) Real estate.

(a) Commercial/corporate

The Liechtenstein Commercial Register provides information on
natural persons and legal entities engaged in commercial
transactions. While in some cases (for certain supporting
documents) a justified interest must be proven, the issuance of a
certified extract from the Liechtenstein commercial register can be
requested by anyone.

Further, if a company engages a commercial agent, certain
requirements must be met. For example, in case of termination of
the contractual relationship by the company, the commercial agent
may demand reasonable compensation if the company still derives
significant benefits from customers acquired by the commercial
agent.

(b) Financial

If the target offers financial services – either as a bank
or as an insurance company – the relevant
regulatory/reporting requirements must be complied with before and
after the transaction. For example, if an insurance company is the
target of an M&A transaction and the acquisition intended by
the buyer reaches a certain percentage of the voting rights of the
target, certain reporting requirements must be complied with
according to Articles 92 and following of the Insurance Supervision
Act.

(c) Litigation

Since Liechtenstein has concluded enforcement agreements only
with Austria and Switzerland, and has not acceded to either the EU
Brussels I Regulation (1215/2012) or the Lugano Convention on
Jurisdiction and the Recognition and Enforcement of Judgments in
Civil and Commercial Matters 2007, court decisions from all
countries other than Austria and Switzerland, in principle, cannot
be enforced in Liechtenstein. Hence, usually a fast-track procedure
(Rechtsöffnungsverfahren) is initiated in order to
ultimately obtain a Liechtenstein execution title on the basis of a
foreign judgment. Natural persons who do not have a permanent
residence in Liechtenstein and who appear as plaintiffs in
proceedings before the Liechtenstein courts must, in principle,
provide security for the costs of the proceedings upon request
according to Section 57(1) of the Civil Procedure Act. The same
applies for legal entities which cannot prove that they are able to
bear the defendant’s presumed costs of the proceedings,
regardless of their registered office. These two peculiarities of
Liechtenstein law can be both an advantage and a disadvantage for
the buyer; but in any case they should be considered in the course
of M&A transactions.

(d) Tax

As part of the due diligence process, the buyer should also pay
particular attention to whether the target has paid all taxes in
accordance with Liechtenstein tax requirements. Due to bilateral
agreements concluded between Liechtenstein and Switzerland, various
Swiss tax rules are also directly applicable. In addition,
Liechtenstein has concluded double taxation agreements with a
number of countries, including Austria, Switzerland and
Germany.

(e) Employment

Due to its liberal labour law, Liechtenstein offers attractive
framework conditions for employers. In addition to the individual
employment contracts, there are branch-specific general employment
contracts that must also be complied with. During the due diligence
process, it should be investigated:

• whether all social security contributions for employees have
  been paid; and




• whether these are considered in the purchase price
  determination.

In the case of an asset deal, in the event of the transfer of a
company or business, the employment relationship is transferred to
the buyer ipso iure pursuant to Section 1173a, Article 43
of the General Civil Code. The target and the buyer are jointly and
severally liable for outstanding claims at the time of the
transfer. The employees affected by the transfer may reject the
transfer of the employment relationship, whereupon the employment
relationship will be terminated upon the expiry of the statutory
notice period, but at the earliest upon the date of the actual
transfer of the business. However, the transfer of the business is
not a sufficient reason for termination by the seller or buyer.

(f) Intellectual property and IT

Liechtenstein forms a uniform protection area for invention
patents with Switzerland, which is why Swiss patent law is also
applicable in Liechtenstein. The Liechtenstein laws on trademark
protection, copyright and related rights are also based on Swiss
legislation. Since 2020, the Token and Trusted Technology Service
Providers Act has been in force in Liechtenstein, which provides
legal grounds for transactions based on blockchain technology. With
the establishment of the Token and Trusted Technology Service
Providers Act, Liechtenstein has positioned itself as a pioneer in
the field of blockchain and became the first country in the world
to enable the digitisation of rights. Should the target bear
tokens, the legal handling of them is therefore easier in
Liechtenstein than in other countries.

(g) Data protection

The EU General Data Protection Regulation and the Liechtenstein
Data Protection Act provide a high standard of data protection. The
various obligations must be complied with by the responsible party
and the data subjects have numerous rights to control the
protection of their data. The target’s compliance with these
obligations and preservation of data protection must be considered
in the course of the due diligence process.

(h) Cybersecurity

In Liechtenstein, there are no special regulations on
cybersecurity. If the target has not yet taken appropriate
precautions, the necessary adaptations must be considered during
the due diligence process. The National Cybersecurity Unit offers
further information on this topic.

(i) Real estate

In practice, real estate can make up a significant part of the
target’s assets. Whether the target is actually the owner of
the real estate and whether it is possibly encumbered by third
party rights can be found out by inspecting the Land Register
administrated by the Liechtenstein Office of Justice. Also, as
Liechtenstein is a very small country, the Land Transfer Act
imposes considerable restrictions and an approval obligation for
the acquisition of real estate located in Liechtenstein.

3.2 What public searches are commonly conducted as part of due
diligence in your jurisdiction?

In Liechtenstein, certain information concerning the private-law
relationships of companies (eg, company name, registered office,
purpose, authorised signatories) can be obtained via the
Liechtenstein Commercial Register and, regarding financial
intermediaries, in the public registers of the Financial Market
Authority. Additionally:

• the Land Register provides information on the existence of
  rights in rem to real estate; and




• the Ultimate Beneficial Ownership Register contains data on the
  beneficial owners of legal entities. However, this register may
  only be inspected under very restrictive conditions and is not
  generally publicly accessible.

3.3 Is pre-sale vendor legal due diligence common in your
jurisdiction? If so, do the relevant forms typically give reliance
and with what liability cap?

Pre-sale vendor legal due diligence is necessary only when the
vendor cannot provide a clear report on the company on its own,
especially due to the lack of knowledge of the company. This
situation does not arise very often in Liechtenstein. As the person
that prepares the pre-sale vendor legal due diligence is usually
paid by the seller and is dependent on the seller’s
instructions, the buyer generally does not have much confidence in
such reports. In practice, the scope of liability is either within
the usual ranges or fully disclaimed.

4 Regulatory framework

4.1 What kinds of (sector-specific and non-sector specific)
regulatory approvals must be obtained before a transaction can
close in your jurisdiction?

There is no national stock exchange in Liechtenstein. Therefore,
if a Liechtenstein domiciled company wants to go public, it usually
does so on a stock exchange in Switzerland or in the European
Economic Area. The Takeover Act and the Disclosure Act apply to
these companies and subject them to certain reporting requirements
and approval reservations (see also question 6). Additionally, the
acquisition of certain targets that provide financial services (eg,
banks and insurance companies) may require notification to and
approval by the Financial Market Authority.

4.2 Which bodies are responsible for supervising M&A
activity in your jurisdiction? What powers do they have?

Regarding all the regulatory frameworks mentioned in question
4.1, the Financial Market Authority is the main supervising body.
The Financial Market Authority has extensive powers to fulfil its
supervisory role and can, for example:

• prevent transactions;




• order the suspension of share-linked voting rights; or




• order the submission of certain documents.

4.3 What transfer taxes apply and who typically bears
them?

In Liechtenstein, income tax, value added tax (VAT) and stamp
duty, among other things, may be payable in the course of a
transaction. In principle, the taxes are borne by the person that
incurs them. However, the seller usually recovers the VAT from the
buyer by adding a surcharge to the purchase price.

5 Treatment of seller liability

5.1 What are customary representations and warranties? What are
the consequences of breaching them?

A catalogue of representations and warranties is at the heart of
every M&A agreement and is also a standard element in
Liechtenstein M&A transactions. In practice, it is common to
agree on representations and warranties regarding:

• the seller’s power of disposal;




• the scope and condition of the assets;




• the full payment of taxes and duties;




• IP rights;




• employees and their pension plans;




• litigation; and




• comprehensive disclosure.

The legal remedies if such warranties are not complied with are
often modified by the parties (see also question 5.2).

5.2 Limitations to liabilities under transaction documents
(including for representations, warranties and specific
indemnities) which typically apply to M&A transactions in your
jurisdiction?

It is frequently agreed that:

• the seller is liable only up to a certain amount (liability
  cap); and




• damages below a certain amount cannot be claimed at all (de
  minimis).

In addition, the statutory time limits for asserting claims are
frequently modified.

5.3 What are the trends observed in respect of buyers seeking
to obtain warranty and indemnity insurance in your
jurisdiction?

Agreements regarding warranties and indemnities are becoming
increasingly common in Liechtenstein and are already part of most
M&A transactions.

5.4 What is the usual approach taken in your jurisdiction to
ensure that a seller has sufficient substance to meet any claims by
a buyer?

One (popular) way of securing the buyer’s claims is to
deposit part of the purchase price with an escrow agent. The escrow
agent then pays the escrowed amount to the seller after expiration
of the relevant (agreed-upon) deadlines. In the event of an
(arbitration or court) ruling in favour of the buyer, it is usually
agreed that the escrow agent must pay the buyer the amount awarded.
Guarantees provided by banks or third parties are, in comparison,
generally less attractive due to their costliness.

5.5 Do sellers in your jurisdiction often give restrictive
covenants in sale and purchase agreements? What timeframes are
generally thought to be enforceable?

Restrictive covenants are intended to protect the value of the
target after the acquisition and are a standard component of
M&A transactions in Liechtenstein. Non-compete and
non-solicitation agreements are particularly common. Such
agreements are generally deemed valid by the courts as long as time
and place restrictions are agreed upon and there is no striking
disproportion between the interests of the parties.

5.6 Where there is a gap between signing and closing, is it
common to have conditions to closing, such as no material adverse
change (MAC) and bring-down of warranties?

In Liechtenstein, the parties to an M&A transaction
regularly agree on closing conditions. In addition to MAC clauses
and bring-down of warranties, the closing is also made dependent
on, for example:

• the necessary official approvals (in particular, and in some
  cases, from the Financial Market Authority); or




• the completion of an internal restructuring of the target.

6 Deal process in a public M&A transaction

6.1 What is the typical timetable for an offer? What are the
key milestones in this timetable?

According to Article 17 of the Takeover Act, the period for
acceptance of the buyer’s offer may not be less than two weeks
and not more than 10 weeks from the date of publication of the
offer document. Under certain circumstances, the Financial Market
Authority may set a minimum period of three weeks. However, if an
offer has failed, the bidder and all persons acting in consent with
it may not make any further bid for shares of the target within one
year. During the same period, they are also prohibited from any
acquisition of shares that would trigger the obligation to make an
offer.

6.2 Can a buyer build up a stake in the target before and/or
during the transaction process? What disclosure obligations apply
in this regard?

In principle, the would-be acquirer may build up a stake before
launching a bid. However, according to Article 25 of the Disclosure
Act, it must notify the target as well as the Financial Market
Authority if it reaches, exceeds or falls below 5%, 10%, 15%, 20%,
25%, 33%, 50% or 66% of the voting rights of the target through
acquisition, sale or in any other way.

6.3 Are there provisions for the squeeze-out of any remaining
minority shareholders (and the ability for minority shareholders to
‘sell out’)? What kind of minority shareholders rights are
typical in your jurisdiction?

According to Article 17 of the Takeover Act, the bidder may
demand the invalidation of the remaining shares in return for
paying the compensation offered to the other sellers (squeeze-out)
if the 95% threshold of voting capital and voting rights is
exceeded. Vice versa, the minority shareholders have the
right to demand that the bidder take over their securities as soon
as the bidder holds at least 90% of the voting share capital
(sell-out).

6.4 How does a bidder demonstrate that it has committed
financing for the transaction?

According to the Takeover Act, the bidder may only submit a
takeover bid if it is convinced that the funds necessary for total
fulfilment will be available to it in due time. In addition, the
documents submitted by the bidder must be examined by an
independent expert, who must also issue a confirmation that the
bidder has the necessary funds at its disposal to complete the
bid.

6.5 What threshold/level of acceptances is required to delist a
company?

There is no national stock exchange in Liechtenstein. Hence,
Liechtenstein has no stock exchange legislation and
Liechtenstein-domiciled public companies can only be listed on
foreign stock exchanges.

6.6 Is ‘bumpitrage’ a common feature in public
takeovers in your jurisdiction?

Although shareholder activism has increased in Liechtenstein in
recent years, the same cannot be said of bumpitrage. This tactic
describes the purchase of the would-be-acquirer by an activist
investor, which then tries to leverage the offer by stirring up the
other shareholders. The low incidence of bumpitrage threats is
probably due to the fact that most stock corporations are
controlled by anchor shareholders.

6.7 Is there any minimum level of consideration that a buyer
must pay on a takeover bid (eg, by reference to shares acquired in
the market or to a volume-weighted average over a period of
time)?

If a controlling interest is obtained through the acquisition of
shares, a mandatory offer must be made for all remaining shares of
the entity. The price of this mandatory offer:

• may not be lower than the highest consideration granted by the
  bidder within the last 12 months for shares in the target; and




• must at least correspond to the stock exchange price of the
  last six months (Article 25 of the Takeover Act).

However, in the case of a voluntary takeover offer, no minimum
offer price is required.

6.8 In public takeovers, to what extent are bidders permitted
to invoke MAC conditions (whether target or market-related)?

In principle, MAC conditions may be freely agreed and are only
restricted by the general limits of freedom of contract (private
autonomy). However, in the case of mandatory offers, these may not
be made conditionally unless the condition is required by law
(Article 21 of the Takeover Act).

6.9 Are shareholder irrevocable undertakings (to accept the
takeover offer) customary in your jurisdiction?

Shareholders may effectively commit themselves – within
the general limits of freedom of contract (private autonomy)
– to irrevocably accept the offer. However, it cannot be
assessed whether shareholder irrevocable undertakings are customary
in Liechtenstein.

7 Hostile bids

7.1 Are hostile bids permitted in your jurisdiction in public
M&A transactions? If so, how are they typically
implemented?

Hostile bids are permitted in Liechtenstein: the acquirer may
present its offer directly to the shareholders without the board of
directors’ consent. However, for public offers, the provisions
mentioned above must also be considered.

7.2 Must hostile bids be publicised?

Since there are no specific regulations regarding hostile bids,
the general provisions apply. Therefore, reporting obligations
arise as soon as the corresponding thresholds mentioned above are
exceeded.

7.3 What defences are available to a target board against a
hostile bid?

According to Article 11 of the Takeover Act, the target’s
management body is obliged to maintain neutrality in the context of
an intended takeover. Accordingly, the target body may, in
principle, adopt measures that could frustrate the offer only
if:

• it is obliged to do so; or




• it acts on the basis of a shareholders’ resolution that was
  adopted after the intention to bid became known.

This applies in particular to the issue of equity securities
which could prevent the bidder from gaining control over the
target. Within this framework, the target board may therefore use
defensive measures such as:

• the sale of parts of the company that are particularly
  interesting to the bidder;




• maximum voting rights; or




• long-term contracts with members of the management board.

8 Trends and predictions

8.1 How would you describe the current M&A landscape and
prevailing trends in your jurisdiction? What significant deals took
place in the last 12 months?

In general, the prevailing trend in the Liechtenstein M&A
landscape is that share deals, in which the participation in a
target is acquired by taking over the shares of the target,
predominate. Asset deals – in which only certain or, as the
case may be, all assets and liabilities are identified and bought
out of the target – are rather rare in comparison.
Significant M&A transactions that were completed in the last 12
months are difficult to identify because many M&A transactions
are not publicly disclosed. The reason for this is again that many
M&A transactions are carried out in the form of share deals,
which often involve a change or exchange of the shareholder
structure that is invisible to the public.

8.2 Are any new developments anticipated in the next 12 months,
including any proposed legislative reforms? In particular, are you
anticipating greater levels of foreign direct investment
scrutiny?

New developments and/or legislative plans that directly affect
the Liechtenstein M&A landscape cannot be identified at
present. In particular, from today’s perspective, no increased
control of foreign direct investments is foreseeable or
discernible.

However, the recent plans of the Organisation for Economic
Co-operation and Development (OECD) member states to introduce a
global minimum income tax could potentially have an indirect
influence on the Liechtenstein M&A landscape, as it must be
assumed that the Liechtenstein legislature will implement the
requirements of the G20/OECD Inclusive Framework regarding the
introduction of a global minimum tax of 15% on the annual income of
companies with a turnover of more than €750 million into
domestic Liechtenstein law at the beginning of 2024.

However, Liechtenstein as a jurisdiction has numerous locational
advantages: despite the reduction of tax competition advantages,
Liechtenstein remains an attractive jurisdiction for wealth
planning – in particular due to its liberal and highly modern
corporate law. These advantages of Liechtenstein as a jurisdiction
are, of course, also relevant in the M&A sector and
Liechtenstein companies therefore remain attractive targets in the
international M&A sector.

9 Tips and traps

9.1 What are your top tips for smooth closing of M&A
transactions and what potential sticking points would you
highlight?

A classic sticking point in the Liechtenstein M&A landscape
concerns the takeover of stock corporations that have issued
registered shares (Namenaktien).

Unless otherwise provided for in the articles of association,
registered shares are deemed to be so-called ‘order
papers’. For the legally effective transfer of order papers, a
corresponding transfer note is required on the order paper, in
which the previous holder makes the note that the acquirer is now
to be entitled from the order paper. It is also permissible to
issue a so-called ‘blank endorsement’. In this case, no
additional note is required – the handing over of the order
paper alone is sufficient.

Against this background, in Liechtenstein legal practice the
mistake is often made that the share certificates relating to the
registered shares are simply withdrawn by the target and, in a
second step, new share certificates are issued in the name of the
purchaser. However, pursuant to Liechtenstein law, a legally
effective transfer of rights and obligations requires that both a
transfer agreement exist and the legally prescribed mode of
transfer be observed.

Hence, in the case of registered shares, the legally effective
transfer generally requires the affixing of a transfer note
(endorsement) to the share certificates and the handing over of the
share certificates from the seller to the purchaser. If the share
certificates of the target are simply withdrawn without complying
with these transfer modalities, there is no legally effective
acquisition of the registered shares and the chain of title is not
(or no longer) complete.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.