Asset Sale vs Share Sale

I often get asked what the benefits are of a share sale over an asset sale. The truth is, there are pros and cons to each structure and you need to ensure whatever route you take is the right one for you. However, I have outlined a few key factors to consider below:

In an asset sale:

  1. The buyer ‘cherry pick’s the assets they need to run the business. This can include real property, physical assets and equipment, specific contracts, intellectual property, branding and goodwill. Any real property transferred would be subject to stamp duty at applicable rates.
  2. The seller usually retains liabilities (unless otherwise agreed) and still needs to discharge these. This includes any tax liabilities due to HMRC.
  3. If the seller is your company, the company is the contracting party and your liability is limited as an individual (unless you give a personal guarantee)
  4. Employees are required to transfer to the buyer’s employment under regulations commonly known as ‘TUPE’.
  5. Other contracts will need to be individually assigned or new contracts (such as insurance) taken out by the buyer. Customers and suppliers therefore will need to be notified and this can interrupt the continuity of business.

In a share sale:

  1. The ownership of the company changes, not the ownership of its assets. Your company continues to own all of its assets.
  2. Contracts with the company remain in place. This can preserve continuity of business, as usually there is no need for assignments or new contracts to be entered into. The employees also continue to be engaged by the Company without the need to apply the TUPE regulations.
  3. Just as assets remain in place, all liabilities also remain in place and the buyer indirectly assumes these. This is why due diligence on a share sale needs to be particularly thorough.
  4. Provided you qualify and the transaction is properly structured, the proceeds of sale are subject to capital gains tax rather than income tax. This means you may also qualify for Entrepreneurs Relief which can have a substantial impact on reducing your tax liability.
  5. A buyer is required to pay stamp duty on the transaction, this would be at a rate of 0.5% (rounded up to the nearest £5.00).

For further information in relation to a business sale, contact Holly Threlfall and the Corporate team on 01908 660966 / 01604 828282 or email Corporate@franklins-sols.co.uk.

Disclaimer: The information provided on this blog is for general informational purposes only and is accurate as of the date of publication. It should not be construed as legal advice. Laws and regulations may change, and the content may not reflect the most current legal developments. We recommend consulting with a qualified solicitor for specific legal guidance tailored to your situation.