Private equity firms have been targeting professional service firms as investment opportunities for some time now. They are asset light and generate comparatively high returns combined with substantial growth potential. However, when it comes to areas regulated by professional law, questions arise regarding the legal admissibility and structuring of investments by third parties who are not members of the respective profession.
Most recent and prominent examples in Germany are
- Cinven expanding its auditing firm network through the acquisition of a majority stake in the German entity of the Grant Thornton accounting firm;
- Swiss Partners Group establishing Afileon group with more than twenty-five German and Swiss tax and audit firms;
- KKR investing in the financing of a succession solution for German tax advice, consulting and audit firm ETL Group; and
- WTS Group entering into a strategic partnership with financial investor EQT.
WTS, for example, is already one of the largest tax advisory firms in Germany. With EQT's support, the group aims to become the European market leader by 2029.
But how can such investments be legally structured in Germany? Compared to the UK, where it is even possible to invest in law firms, German law is already stricter. Moreover, the German federal government has taken the increased investor interest as an occasion to publish a draft bill aiming to restrict future third-party investments in tax advisory firms, sparking concerns among private-equity investors. The draft bill in particular seeks to tighten the restrictions on third‑party participations (Fremdbesitzverbot), a German law general principle which is established in the professional laws for auditors, tax advisors, lawyers, pharmacists, and medical doctors (with the well-known exception of medical treatment centers - MVZ). In the following, we will take a look at the rules already in place for the non-medical professions, and the tightened rules proposed by the German government.
A. The current German rules on third-party participations
The restrictions of third-party participations in regulated advisory firms are based on the blanket assumption that investors who pursue purely financial interests jeopardize the independence and integrity of the advisors and the quality of their advice. This has been reflected in the German professional laws for auditors, tax advisors and lawyers. Common elements among these professional laws include:
- firm members being required to have an active role in the firm to prevent purely financial investments;
- the requirement that members and shareholders must be admitted to practice in certain professions (e.g. auditors, lawyers, tax advisors); and
- the prohibition of holding shares or interests for the benefit of a third party.
The specific rules vary between the respective professions with the most restrictive rules applying for the legal profession and less restrictive rules being in place for auditors and tax advisors.
Since these rules apply to equity participations, debt investments can be used as an alternative, as these are generally permissible under the professional laws, subject to the general prohibition of circumvention.
1. Lawyers
Pursuant to the German Federal Lawyers’ Act (Bundesrechtsanwaltsordnung – BRAO) only other law firms who are admitted to the German bar are entitled to own equity participations in a German law firm. It is important to know that this requirement applies up the shareholders’ chain to the ultimate owner(s). This strict and broad regulatory requirement effectively prevents private equity investments in German law firms.
Last year, the ECJ ruled in case C-295/23, Halmer Rechtsanwaltsgesellschaft, that the German restrictions on third-party ownership for lawyers are compatible with European law, particularly the freedom of establishment. Although the rules in question have since been modified, the ECJ's broader conclusion that such restrictions may be compatible with European law remains valid.
2. Auditors
The rules regarding third-party participation in auditing firms are less strict, allowing a wider range of third-party entities to invest into auditing firms.
According to the German Auditors Act (Wirtschaftsprüferordnung – WPO), members of an auditing firm must be either (i) qualified German or EU/EEA auditors, (ii) members of other permitted professions, such as lawyers and tax advisors, or (iii) German auditing firms, or EU/EEA auditing firms. However, the majority of equity participation must be held by individual auditors or by other auditing firms, whether admitted to the respective professional bar in Germany or in another EU/EEA member state.
Therefore, while direct investments by private equity funds are not permitted, private equity investors can indirectly invest in German auditing firms by using an auditing firm admitted in an EU/EEA member state as an investment vehicle, assuming that no local restrictive rules apply in the home country of the directly investing EU/EEA auditing firm. In practice, the EU/EEA auditing firm used as investment vehicle is often based in Luxembourg.
3. Tax advisors
The participation requirements for tax advisory firms are stricter than the professional rules for auditors.
According to the German Act on Tax Advisors (Steuerberatungsgesetz – StBerG), only individual tax advisors, lawyers, German tax advisory firms and law firms, auditors and admitted German auditing firms may be members of a tax advisory firm. Therefore, a direct investment by private equity investors is not possible either. However, unlike the professional rules for German auditing firms, the StBerG does not allow EU/EEA auditing or tax advisory firms to hold a stake in a German tax advisory firm.
However, since German auditing firms can hold participations in tax advisory firms, private equity investors are able to invest in German tax advisory firms through a double holding structure. This structure consists of a German auditing firm as the direct shareholder and an EU/EEA auditing firm as the indirect shareholder of the German tax advisory firm.
B. The reaction of the German legislator
The German Federal Ministry of Finance (Bundesministerium der Finanzen), seeks to tighten the requirements for third-party investments in German tax advisory firms with the draft bill dated August 7, 2025. If the bill comes into effect, this will have severe consequences for future private-equity investments.
The draft bill introduces a new rule that requires member firms of tax advisory firms to adhere to the same professional bar admission requirements as tax advisors. These requirements would apply "up the chain", meaning indirect, purely financial participations as currently used by private equity investors would become inadmissible.
Currently, it is unclear whether the draft bill will be passed in its current form. However, it seems likely that there will be a change to more restrictive rules, at least for investments in tax advisory firms. The Federal Chamber of Tax Advisors (Bundessteuerberaterkammer) welcomes this change in its statement on the draft bill and emphasizes the importance of restrictions on third-party participations for the independence of tax advisors.
Therefore, investors and practitioners should closely monitor further developments. The current draft does not include a transitional period. While existing structures should remain permissible for constitutional reasons based on the grandfathering principle, future changes to these structures could require them to adapt to the new rules.
Stricter rules for auditing firms are not currently on the horizon. A recent government draft of a reform to professional laws for auditors, dated April 2, 2025, contains no such provisions. Regarding restrictions on third-party participation, the draft only states that purely financial participations shall remain inadmissible in the future. In response, the Institute of Public Auditors in Germany (Institut der Wirtschaftsprüfer), the German Auditors' Association, has released a statement requesting legislators to consider alternatives to the general restriction on third-party participation. In particular in light of the much more relaxed rules in other EU member states, such as Luxembourg, the German Auditors' Association seems to be open to allowing financial investments in auditing firms, unlike the Chamber of Tax Advisors.
If you have any questions concerning the material discussed in this client alert, please reach out to one of the members of our Frankfurt private equity team.
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