Asset Sale v Share Sale

Part 1 – Asset sale

When acquiring an incorporated business in the UK, there are two main options: buying the assets of the business or buying the shares of the company that owns the business. Both methods have pros and cons, and the better option will depend on the buyer’s and seller’s personal, financial, and legal circumstances. It is essential to understand the differences between an asset sale and a share sale and seek legal advice before making a decision. An asset sale allows the buyer to select specific assets and liabilities of the business, while a share sale transfers ownership of the company and all its assets, liabilities, and obligations to the new owner.

Advantages of an Asset Sale for the Seller:

• The company, rather than individual shareholders, provides warranties and guarantees.
• The seller can retain valuable parts of the business or sell them later.
• The seller can exclude certain assets from the sale.
• Fewer warranties and indemnities are required from the seller.
• The buyer takes on less risk, simplifying the transaction and contract.
• Tax advantages may be available, such as allowable losses and balancing allowances.

Disadvantages of an Asset Sale for the Seller:

• The company will retain any liabilities.
• The sale may be logistically complex, requiring consent and negotiations with third parties to transfer all relevant parts of the business.
• The seller must obtain releases of any securities on the assets of the business from their financiers.
• An asset sale may lead to a double tax charge, with an initial Corporation Tax charge on capital gains and a further tax charge when the proceeds of the sale are extracted from the company or distributed to shareholders.
• The sale may be harder to keep confidential.

Advantages of an Asset Sale for the Buyer:

• The selling company’s liabilities usually do not transfer to the buyer.
• The buyer can choose not to take on certain assets.
• The buyer may be in a better position to assess and plan for potential future tax exposure.
• Tax reliefs may be available depending on the assets being acquired.

Disadvantages of an Asset Sale for the Buyer:

• Additional formalities may be required to transfer individual assets, rights or contracts.
• Third parties may not consent to the transfer of essential assets or contracts.
• TUPE regulations may apply, automatically transferring employees from the seller to the buyer with existing terms and conditions.
• VAT may be levied on the purchase consideration unless the transaction qualifies as a Transfer of a Going Concern.
• Tax on the acquisition of real property assets may be greater than the equivalent stamp duty cost of acquiring shares.

If you require assistance in purchasing the assets or shares of an incorporated business then call us today, on 0121 268 3208 or send us an email at info@onyxsolicitors.com with your query and we will get back to you.

Please note that this blog is not intended to be tax or legal advice. This material has been prepared for informational purposes only and as general guidance. Is not intended to provide, nor should it be relied on for, legal or tax advice. You should consult your own advisors or seek professional independent advice before engaging in any transaction.