- Assets v shares – which route is best for you when buying or selling a company?
Assets v shares – which route is best for you when buying or selling a company?
Assets v shares – which route is best for you when buying or selling a company?7th August 2020 - Published by
With all that has gone on in the world over the past few months, are you taking stock of your current position? If you are thinking ‘what next?’ then you are not alone.
Now may be a good time to think about consolidating your interests, or even starting something new. When it comes to businesses, there are two principal methods of selling/purchasing, which are:
1) asset sale/purchase
2) share sale/purchase
Asset Sale or Purchase
The buyer takes over the ‘business’ by purchasing certain assets and rights (e.g. stock, intellectual property rights, customer information) that are owned by the company (rather than purchasing the company itself). Essentially, the buyer “cherry picks” the assets and the liabilities that they want, and leaves behind anything they don’t. This is considered to be a “buyer friendly” method.
With this method, it is imperative that you consider issues such as:
- Employees – bearing in mind they will automatically transfer across by law on a transfer of an undertaking under “TUPE”, along with protections with regards to dismissal
- Contracts – will commercial contracts need to be transferred across to the name of the buyer with the consent of the other party(ies)?
- Consent – are any other consents required from any third parties, such as for licences/regulatory matters/from funders?
- Tax – an asset purchase typically comes with all assets rebased for tax purposes, whereas with a share purchase there can be latent tax gains that might be realised in the future. An asset purchase also reduces the risk of claims for incorrectly paid taxes of the past.
Share Sale or Purchase
The buyer acquires ownership of the company, by purchasing the shares in the limited company that runs the business. The buyer, whether this is an individual or another limited company, will become the shareholder of the target, and essentially steps in to the shoes of the existing shareholder(s).
A limited company has its own separate legal personality from its shareholder(s); it can enter into its own contracts and own assets itself. Therefore, as a result of the sale/purchase, the company in question will continue to own the assets, the rights and liabilities. The only thing that changes hands in a share purchase is the shares themselves, which eradicates some of the considerations listed above.
It is considered to be a more “seller friendly” method because the risk is a lot higher for the buyer, on the basis that it is taking on all of the assets and liabilities of the selling entity (“warts and all”). From a tax point of view, it is often preferable for sellers too, particularly with the current capital gains tax regime.
This also means that the due diligence process and negotiating of documents is of material importance, which can drive up costs. From the buyer’s perspective, it needs to be sure it has all the pertinent information in respect of the company and that the terms of the documents are acceptable.
Choosing between an asset or share sale or purchase
It will be a point of negotiation between the parties and often will be dependent upon the type of business.
There is no right or wrong answer; the method adopted could be driven by tax implications and/or the various risks involved.
Speak to a corporate solicitor in Manchester about your company sale or purchase
If you are thinking about either type of sale or purchase, please call the corporate team for a discussion about your options on 0161 838 7847 or email