Understanding the Legal and Practical Differences to Make the Right Strategic Choice
Selling a business involves significant legal considerations, particularly the choice between a share sale and an asset sale. Under English Law, these differ fundamentally in what is transferred and the resulting implications for both buyer and seller.
In a share sale, the shareholders sell their shares in the company. The company itself remains the same, retaining all its assets, liabilities, contracts, and history. The buyer essentially acquires the entire existing legal entity.
Conversely, in an asset sale, the company sells specific assets to the buyer. These can include property, equipment, intellectual property, and customer lists. The company continues to exist (unless later dissolved), and the buyer only acquires the chosen assets and typically assumes only explicitly agreed-upon liabilities.
Key Implications:
For the seller, a share sale can be more tax-efficient for individual shareholders due to potential Capital Gains Tax reliefs. However, it often involves providing warranties about the entire company. An asset sale may trigger Corporation Tax on profits from the asset disposal.
For the buyer, an asset sale allows for selective acquisition, avoiding unwanted liabilities. They can also often claim capital allowances on purchased assets. However, contracts and employees may need to be separately transferred, potentially triggering TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006). A share sale necessitates thorough due diligence on the entire company but ensures the automatic transfer of contracts and employees.
Taxation is a crucial differentiator. Share sales can benefit from Capital Gains Tax reliefs for sellers, while asset sales may lead to Corporation Tax. For buyers, asset purchases can offer capital allowances, while share purchases attract Stamp Duty on the share transfer.
Liability also differs significantly. In a share sale, the company retains pre-sale liabilities. In an asset sale, the buyer typically only assumes specified liabilities, offering greater control over potential risks. The complexity of the transaction tends to be higher in share sales due to the need to scrutinise the entire company. Asset sales can be more straightforward but require careful identification and transfer of individual assets and contracts.
The optimal choice hinges on various factors, including tax implications, the extent of liabilities, the desire for a clean break, and the specific assets the buyer seeks. Expert legal advice is crucial to navigate these complexities and structure the sale effectively under English Law.
Considering selling your business?
Bennett Oakley Solicitors provide expert guidance on all aspects of business sales, helping you understand the nuances of share and asset sales to achieve your objectives. Contact us today for a confidential discussion: https://www.bennettoakley.co.uk/
