Share Purchase v Asset Purchase

A business can be acquired either through the purchaser buying the shares in the company or its assets.

With a share purchase the company remains intact – it is only its ownership that changes. With an asset purchase, however, the assets of the business change hands and can move to a new company set up by the buyer.

Buyer and sellers should make sure they understand the differences in the structures.

Reasons why a share purchase deal may be preferred:

• It may provide favourable tax treatment for sellers and it can be easier for them to extract the sale proceeds (without possibly needing to wind up the company, like with an asset sale).

  
  

• It can maintain business continuity. However, care should be taken to check whether key contracts contain change of control clauses.

  
  

• The assets remain in the company and do not require transferring to the buyer. With an asset sale transferring those assets may need require dealing with the requirements of a third party, such as the landlord to a lease.

  
  

Reasons why an asset purchase deal may be preferred:

• A buyer can be selective of the assets it requires and leave unwanted liabilities behind. Buyers should of course make sure any legal requirements are complied with such as TUPE; giving employees a legal right to transfer over to the buyer.

  
  

• As historic liabilities are typically left with the seller company, there may be less risk for a buyer. On the other hand, with a share deal the company retains its liabilities. A share buyer typically mitigates against this risk through a detailed due diligence process and a large suite of warranties in the sale document to protect against undisclosed risks.

  
  

• Legal costs can be lower as the sale transaction may be more straightforward. However, the overall position should always be considered. For example, if property is being transferred from a company then Stamp Duty Land Tax on the property may be higher than Stamp Duty on a purchase of the shares.

If you’d like to discuss a business acquisition or disposal then please feel free to get in contact on 07359 989311 or at Robert.Flannagan@acuitylaw.com.