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Asset Sale vs Share Sale
One of the first decisions when buying a business is whether to structure the transaction as an asset sale or a share sale. This choice affects everything.
The core difference
The fundamental distinction is simple, but the consequences are significant.
Asset Sale
Buy the things the business owns
You buy the things the business owns. The company itself (if there is one) stays with the seller. You pick which assets you want and leave the rest behind.
Share Sale
Buy the company that owns the business
You buy the company that owns the business. The company comes to you with everything in it, including assets, contracts, employees, and liabilities.
What transfers?
Asset Sale
Plant, equipment, vehicles, inventory
Customer relationships, reputation, business name
Trademarks, domain names, patents
Only if assignable, often requires consent
Debts, legal claims, obligations before sale
Past tax issues, disputes, regulatory problems
Don't transfer automatically; you must offer new employment
Key advantage: You get a cleaner start. Acquire what you want, leave behind what you don't.
Share Sale
Legal entity continues. Only ownership changes.
Everything the company owns transfers automatically.
Every debt, obligation, and potential claim comes too.
Contracts stay in place automatically. No assignment needed.
Employment relationships continue uninterrupted.
Tax history, regulatory history, any skeletons in the closet.
The risk: You inherit everything, including problems you may not know about. Thorough due diligence is essential.
Tax implications
Tax treatment is often a major factor in choosing between structures. What suits the buyer may not suit the seller.
Asset Sale Tax Position
Share Sale Tax Position
Tax advice is essential
The tax implications of business sales are complex and depend on individual circumstances. Both buyer and seller should take professional tax advice before agreeing on structure.
Buyer vs Seller perspectives
Buyer Perspective
Buyers generally prefer asset sales because they provide a cleaner acquisition with less risk.
Asset Sale Benefits
Share Sale Considerations
Seller Perspective
Sellers often prefer share sales because they offer a clean exit and potentially better tax treatment.
Share sale: Clean exit
The company, with all its history, transfers to the buyer. The seller walks away completely.
Asset sale: Company shell remains
After an asset sale, the seller retains the company. It may have cash but also any liabilities not transferred.
Warranty exposure differs
In share sales, sellers usually provide extensive warranties. Claims can arise years later if problems emerge.
Employee considerations
How employees are treated differs significantly between structures.
Asset Sale
- - Employment does not automatically transfer
- - Buyer offers new employment to staff they want
- - Seller may face redundancy obligations
- - New employment terms can be negotiated
- - Leave balances may not transfer
Part 6A exception: Vulnerable employees
Part 6A of the Employment Relations Act 2000 gives certain "vulnerable employees" a statutory right to transfer to the new employer in an asset sale. This includes workers in cleaning, catering, laundry, orderly, and caretaking roles. Buyers must offer employment on the same terms - this cannot be contracted out of.
Share Sale
- - Employment continues uninterrupted
- - Existing terms and conditions remain
- - Leave balances transfer automatically
- - No redundancy situation created
- - Employment issues become buyer's to manage
Key Takeaways
Asset sales transfer specific assets; share sales transfer the entire company
Asset sales generally give buyers a cleaner acquisition with less risk
Share sales mean inheriting all liabilities, known and unknown
Tax treatment differs significantly; professional advice is essential
Employee transfers are automatic in share sales but not in asset sales
The structure itself is often a point of negotiation in the deal
Related Reading
Due Diligence: What to Check Before Buying a Business
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