How To Sell Your Business – Share Sale or Asset Sale?

One of the first considerations when selling your business is whether to sell your business via a share sale or an asset sale.

While the end goal for seller in each route is the same in facilitating and exit, the structures and legal documentation involved in each type of sale vary considerably.

There are two main forms of sale for a complete, or partial disposal of a business. These are 1) a share sale; or 2) an asset sale.

Share Sale

In a share sale, the buyer acquires the company as a whole and along with it, all of its assets and liabilities.

In a share sale, the buyer acquires (typically) the entire share capital of the company together with its customers, supplier contracts, bank accounts and various registered intellectual property. This means that business can carry on as usual with no disruption or need to amend its various outstanding agreements or registrations, such as VAT registration or third party supplier contracts, for example.

With a share sale, the buyer pays the agreed sale price (often involving some element of deferred consideration, dependent on the value of the sale) and the shares are transferred from one person (or company) to another, which in practical terms, involves applicable stock transfer forms to be completed and updates made to the company’s registers of shareholders and directors status. Post completion, the company will continue to operate as previously, just under new ownership.

Buying shares of a business means that the buyer acquires the assets of the company, but they also acquire any of its liabilities, including historical liabilities, which could be historical tax liabilities, product warranty issues or historical employment grievances.  As a result buyers will often build in extensive warranties, to be given by the seller, in the principle legal document called a Share Purchase Agreement (SPA). The warranties given within the SPA need to be carefully checked and confirmed by the sellers, to ensure that they are true and accurately reflect the position of the company. If there are any warranties that the seller cannot truthfully provide, then these must be adequately disclosed to the buyer.

Due to the fact that a share sale transfers all historical liabilities to the buyer, the negotiation of the legal documentation can be a more onerous task and often involves a more extensive due diligence process than that which would normally be undertaken in an asset sale.

Asset Sale

In an asset sale, the buyer pays an agreed total purchase price for the defined assets being acquired from a business. The agreed purchase price is often apportioned between the various tangible and intangible assets. In asset sales there is also sometimes a separate balance payable for the sock of the business, which is typically independently valued immediately prior to the day of completion. Unlike in a share sale, the buyer in an asset sale can pick and choose which assets they would like to acquire, with no obligation to acquire any of the liabilities or other unwanted or undesirable elements of the business.

However, asset sales can be more logistically complex than a share sale, because the buyer will need to ensure that all the different parts of the business are legally transferred. This is particularly relevant where a business has employees, as an asset sale will trigger TUPE requirements, meaning that the buyer is required to continue the employment of any existing employees to the business, and such employment must continue under no less favourable terms than under the previous owner, subject to limited exceptions.

Tax Treatment

Tax treatment is a key consideration when selling your business and so it is vital to involve your accountant at the very beginning of any sale negotiations. Your accountant will be able to advise of the tax treatment that you are likely to receive on any business sale, dependent on your individual circumstances and whether the business sale will take the form of an asset or a share sale.

Read this article on the importance of selling your business

The Corporate Commercial team at Wilson Browne are experienced in working closely alongside accountants and tax advisors in business sale transactions, to ensure that each transaction proceeds smoothly, on time and in the most tax efficient manner.

The Corporate and Commercial team at Wilson Browne is nationally recognised in the Legal500 and regularly advises clients on a wide range of corporate transactions. If you are thinking of selling your business, and for an initial non-obligation discussion, please contact us via telephone at 0800 088 6004.