Share sale or asset sale? What buyers need to know

You’ve found a business you want to buy. Will you buy shares in the company that runs it, or instead buy agreed assets from the seller? The choice affects what you acquire, the risks involved and what needs to be arranged before you take over.

Think about what you need to keep the business running after you purchase it, things like the premises, equipment, key contracts and staff. It’s important to be clear on what is included in the deal and whether any transfers, consents or new agreements are needed.

Here are three important questions to consider before you commit:

1. What are you actually buying?

In a share sale, you buy shares from the existing shareholders in the company. The company continues to own its assets and remains party to its contracts. It also retains its existing liabilities. That makes careful due diligence on debts, disputes, tax and other commitments essential.

In an asset sale, you buy the assets and rights agreed with the seller — this might include assets like equipment, stock, intellectual property and goodwill. It’s important to identify exactly what is included and what must be transferred separately.

An asset sale does not automatically mean you avoid every existing obligation. The contract, employee arrangements and applicable law should all be reviewed carefully.

2. What do you need to keep the business running?

Make a list of what the business relies on to trade. For example:

• its premises;
• key customer and supplier contracts;
• software, licences and intellectual property; and
• the people who do the work.

In a share sale, those arrangements may stay with the company, but a contract can still require consent or give the other party rights when control changes.

In an asset sale, some arrangements may need to be assigned, approved or replaced. Find out which before you assume the business can operate smoothly after completion.

3. What could change the deal?

Employee entitlements and employment conditions need specific attention if staff will be moving to a new employer. Tax treatment also depends on the transaction and its details, not simply whether the deal is called a share sale or an asset sale.

Your legal and accounting advisers can help you identify what needs investigation, what consents are required, and whether the findings will affect the price or conditions of the deal.

Check what is included before you commit

Before choosing whether to purchase a business via a share sale or an asset sale, identify what the business needs to keep operating after completion. Compare how each structure affects those arrangements, the risks involved and any approvals needed.

If you are considering buying a business, H+A Legal can advise you on the proposed structure and what needs to be checked before you commit.

This is general information only, not legal or tax advice. Obtain personalised advice on your proposed transaction.