Share Sale or Asset Sale – what’s the difference?

There are two common ways of transferring the business to new ownership, share sale or asset sale.

Ultimately the choice of which method will be selected will be influenced by legal, financial and personal considerations of the buyer as well as the seller.

The key difference between the two is in the nature of what a potential buyer acquires:

In a share sale the buyer acquires the shares of the company that owns the trade and assets of the business. The business can continue to run on a ‘business as usual’ basis. The new owner of the company acquires all assets, liabilities and obligations – even those a prospective buyer may not know about!

In an asset sale the buyer acquires the assets which make up the business. This is where the buyer acquires the assets, both tangible (property, land, machinery and stock) and intangible (intellectual property and goodwill).

Generally speaking, a share sale is typically more attractive from a tax perspective to a seller than to a buyer. Whereas an asset sale will often be more tax efficient for a buyer than a seller. However, following recent tax changes the benefit to the tax benefits to the buyer of buying trade and assets are less than they used to be.

Also an asset sale will also allow a buyer to leave behind parts of the business they consider too risky and not to take on past tax obligations.

The seller’s pros and cons

Share Sale

Pros
• A share sale transaction is simpler for the seller than an asset sale as the company is sold as a ‘going concern’ in totality.
• It is a more discreet sale as the business will carry on as usual after the sale.
• The buyer of shares buys a company ‘warts and all’, so will inherit any problems that exist at the date of the sale.
• It is usually significantly more tax efficient for the seller than an asset sale.

Cons
• A share sale involves a greater risk for the buyer than an asset sale because of the level of liabilities the buyer may be exposed to.
• A buyer may apply a discount to reflect the increased risk.

Asset Sale

Pros
• An asset sale generally involves the buyer in fewer risks and therefore the contract and transaction are more straightforward.
• The seller is your company and so any warranties or guarantees you give are given by your company, not you personally. Unless there is an express arrangement to the contrary (which is likely!).
• You can retain parts of the business of value to you or even sell to a different purchaser at a later date.

Cons
• It is generally not as tax efficient for the seller as a share sale, as there are two layers of tax.
• The sale may be logistically more complex than a share sale. You will need to ensure that all the different parts of the business are legally transferred including any properties, employees or contracts. This may involve quite a bit of work on your part.
• The buyer may ‘cherry pick’ the assets they wish to acquire.
• The company will still be yours at the end of the transaction and you will need to deal with this properly e.g. by winding the company up (if appropriate) and paying all existing liabilities and debts and disposing of the retained assets before taking the net cash proceeds.

 

CARE BUSINESS SEARCH...

"I have known Alison and DC Care for a considerable number of years and when the time came to sell, I instructed them without hesitation. Throughout the process, Alison and Lisa were supportive, helpful and always available. I’m so grateful to Alison and her team and I would recommend DC Care to anyone thinking of selling."

Private Client, Clitheroe Care Home