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A Disclosure Letter is a crucial document that sellers use during M&A transactions in Germany to reveal important facts about their business to potential buyers. It works alongside the main purchase agreement to protect sellers by documenting any exceptions or qualifications to their warranties.

Under German civil law, these letters help sellers avoid liability by openly addressing issues like pending litigation, contractual obligations, or compliance matters that might affect the deal's value. Buyers rely on this information to make informed decisions, adjust purchase prices, and understand exactly what they're acquiring. Think of it as a detailed safety net that protects both parties by putting all cards on the table.

Use a Disclosure Letter when selling a business or company in Germany, particularly during the final stages of M&A negotiations. It becomes essential once you've drafted the main purchase agreement and need to document exceptions to your warranties and representations.

The timing is critical - prepare it after conducting thorough due diligence but before signing the purchase agreement. This allows you to address any risks, ongoing disputes, or compliance issues discovered during the review process. German courts recognize these disclosures as valid defenses against warranty claims, making them vital for protecting sellers from future liability while giving buyers clarity about what they're purchasing.

• General Disclosure Letters: The standard format covering company-wide warranties and representations, commonly used in mid-sized German M&A deals
• Specific Issue Letters: Focused documents addressing particular areas like IP rights, employment matters, or regulatory compliance
• Schedule-Based Letters: Organized by warranty categories from the purchase agreement, with detailed exhibits and supporting documents
• Industry-Specific Letters: Tailored versions for regulated sectors like banking or pharmaceuticals, incorporating sector-specific compliance requirements
• Supplemental Letters: Updates to existing Disclosure Letters when new information emerges during extended negotiations

• Selling Companies: Primary drafters who prepare and sign the Disclosure Letter, often through their management board or authorized representatives
• Corporate Legal Teams: Internal lawyers who coordinate the disclosure process and ensure compliance with German corporate law
• External Law Firms: Specialist M&A attorneys who review and refine the disclosures, ensuring they provide adequate legal protection
• Potential Buyers: Recipients who rely on these disclosures for due diligence and risk assessment
• Financial Advisors: Professionals who help identify and quantify issues requiring disclosure, particularly regarding financial warranties

• Purchase Agreement Review: Examine the warranties section carefully to identify all points requiring disclosure
• Due Diligence Files: Gather all company records, contracts, and compliance documents that reveal potential disclosure items
• Department Input: Collect information from key departments like Finance, HR, and Legal about potential warranty exceptions
• Document Organization: Create a clear structure matching the warranty sections in the purchase agreement
• Supporting Evidence: Compile relevant certificates, agreements, or correspondence that support your disclosures
• Final Review: Cross-check against German disclosure requirements and verify all statements are accurate and complete

• Introduction: Clear identification of the parties and reference to the main purchase agreement
• Disclosure Statements: Specific exceptions to warranties, organized by section numbers from the purchase agreement
• General Qualifications: Standard provisions about information in public registers and disclosed documents
• Fair Disclosure Clause: Statement defining what constitutes adequate disclosure under German law
• Supporting Schedules: Numbered appendices containing detailed evidence and documentation
• Execution Block: Proper signature sections for authorized representatives with date and place of signing
• Governing Law: Explicit reference to German law and jurisdiction

A Disclosure Letter differs significantly from a Disclosure Statement in several key aspects, though both deal with revealing important information. Let's explore the main differences:

• Legal Context: Disclosure Letters are specifically tied to M&A transactions and purchase agreements, while Disclosure Statements are broader documents used in various business contexts, from financial reporting to regulatory compliance
• Scope and Purpose: A Disclosure Letter serves as a warranty qualifier in a specific transaction, whereas a Disclosure Statement provides general information about a company's condition or specific matter
• Legal Effect: Under German law, Disclosure Letters actively modify contractual warranties and provide legal protection against future claims, while Disclosure Statements typically serve an informational purpose without directly affecting contractual rights
• Structure: Disclosure Letters follow the structure of the purchase agreement's warranties, while Disclosure Statements usually follow a standardized format based on regulatory requirements