Asset or Share Sale

Depending on the type of business being sold and individual circumstances this will usually dictate the type of sale. Typical transactions could involve the following transfers:

Share Sale

  • Individual shareholders will be the sellers.
  • No relationship between the existing shareholders and company exists.
  • The buyer is likely to want warranties and indemnities after the sale from the existing shareholders.
  • The buyer usually takes on all the debts of the company at completion, provided the existing shareholders are released from all third party guarantees.
  • Any monies from the sale of the business will be received by the shareholder of the business and not the company.
  • Stamp duty on the purchase of the shares will have to be paid, this is currently 0.5% on the total consideration paid for the shares.

Asset Sale

  • The buyer purchases the assets of the business including the contracts, goodwill, machinery, etc.
  • The buyer does not take on the liabilities of the company and these remain with the sellers.
  • The monies from the sale of the assets will be received by the company.

Buyers tend to prefer the purchase of assets as opposed to shares. With an asset purchase the buyer can pick and choose each asset in the company. However, they may want to purchase the company outright by purchasing all the shares in the company. The benefit of a share purchase includes:

  • the company’s customers do not need to know that there has been a change of ownership
  • the reduced likelihood of any employment claims arising from the sale itself
  • the buyer receives all of the company’s non-transferable contracts, consents and licenses and
  • the tax consequences are usually more straightforward and the buyer could minimise its tax liabilities by offsetting the company’s losses against future profits.

Whether you chose to purchase the business by buying the shares or the assets, it is imperative that a thorough investigation and due diligence of the target company is carried out.

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