Buying a Business: Share or Asset Sale

There are two main methods by which a buyer can acquire the business of a company in the UK.

1. A share purchase involves the buyer purchasing the shares in the company and acquiring all of its assets, liabilities and obligations (irrespective of whether these are known to the purchaser).
2. Alternatively, a business or asset purchase entails the buyer acquiring only the individual assets (and liabilities) of the company as identified in the sale agreement.

There are numerous factors for the parties to consider when deciding which structure to use.

A seller may prefer a share sale, as the buyer will assume responsibility for the whole company including all of its liabilities (subject only to any price adjustments, warranties or indemnities that have been agreed). By contrast, the buyer under a business or asset purchase can elect to assume only known, quantified liabilities of the company.

A share purchase will therefore require a greater due diligence process. Areas of risk must be highlighted, so that suitable contractual protection can be granted by the seller in the form of warranties, tax covenants and indemnities in the sale agreement.

Business or asset purchases can pose logistical difficulties, as third party consents and approvals will be required in respect of the transfer of ownership of the various assets of the company to the buyer. Existing contracts and arrangements do not transfer automatically and the assignment or novation of existing contracts (which may be numerous) will be required.

Various tax issues will also need to be considered by the parties, who will often have differing objectives in this respect.

It is important therefore that the parties seek advice at an early stage, to ensure that the appropriate sale structure is adopted.

For more information, please contact our business team.