What is the difference between an asset or share sale?

Are you considering selling your business?  One of the first considerations will be how to structure the sale.  You can either sell the shares or the assets of the company.  There are different reasons as to why you may choose an asset or share sale. 

Asset sale

With an asset sale, the buyer can cherry pick which assets it would like to buy.  For example, the contracts and the goodwill. 

The reason why buyers often prefer this structure is so that they are choosing what they actually want to buy from the business and therefore don’t have to take any of the liabilities, such as any debts.  As they are not taking the shares in the company, they will not be liable for any potential litigation that the company may be exposed to. 

If you are selling your business you may opt for this structure as a way to attract potential buyers to purchase your business.   However, there are tax implications which you will need to consider and you should get advice from an accountant as to this.  

There can be additional work to do, for example to identify and agree which assets are to be purchased. Any contracts that are being transferred will need to be reviewed to see if there is authority in the contracts to transfer them. 

If any employees are being transferred over, the seller will need employment advice on TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006) to transfer them across to the buyer.

Share sale

Generally speaking, a share sale is preferable for the seller, because on completion the seller will have a “clean break” and won’t be directly liable for any liabilities of the company.  Therefore a share sale is typically more straight forward from a structural viewpoint.   

However, the buyer will receive protections against the seller in the sale agreement, which tend to be more extensive on a share sale then an asset sale.  For example, any warranties given will often cover a wider range of matters than those in an asset sale agreement, which would generally relate only to issues with the assets being sold. 

The transaction could take longer due to the due diligence process (whereby the buyer’s advisers review all the key documents of the company), as the buyer is purchasing the whole company and so there may be more documents to review. 

It is really important to consider how the transaction is to be structured and it is a key part of the negotiation process.  This should be discussed with your accountant to make sure that you are aware of the tax liabilities of each option.  If you would like to discuss selling your business (or buying a business!) please contact our corporate and commercial team and a member of the team will be happy to assist you.