Table of Contents
When it comes to selling a UK business, there are two main ways to do it: a share sale or a business sale. While both options can result in the sale of the same limited company, there are some critical differences between the two that UK business owners should be aware of before making a decision. This article will explore the key differences between share sales and business sales in the UK so you are fully aware of the advantages and disadvantages of each.
What is a Share Sale?
In a share sale, the business owner sells their shares in the company to the buyer.
Consequently, the buyer becomes the company’s new owner and takes on all its assets, liabilities and obligations. Essentially, the buyer steps into the seller’s shoes and takes over the company.
What is a Business Sale?
In a business sale, the owner sells the company’s assets to the buyer. This includes:
- equipment;
- stock; and
- Intellectual Property (IP).
The buyer does not take on the company’s liabilities or obligations, and the business owner retains ownership until the sale completion.
Let us explore the main differences between share sales and business sales below.
Continue reading this article below the formCall 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
1. Control
One of the most significant differences between a share sale and a business sale is the control the seller retains.
In a share sale, the buyer takes over the company entirely, and the seller loses all control over the business. This can be a good option for sellers ready to move on and have no interest in remaining involved in the industry.
In a business sale, the seller retains ownership of the company until the sale’s completion, and the buyer only takes on specific assets. This means that the seller can still control the business until the completion of the sale, which can be an advantage for those who want to ensure a smooth transition.
LegalVision’s Buying a Business: Guide to Negotiating Terms allows you to protect yourself by understanding which key terms to negotiate when buying a business.
2. Liabilities
In a share sale, the buyer takes on all of the company’s liabilities, including any debts or legal issues. This can be an advantage for the seller, as they are no longer responsible for the company’s obligations. However, it can also be a disadvantage if the target business has significant liabilities, which may affect the sale price.
In a business sale, the seller retains ownership of the company until the completion of the sale, and the buyer only takes on certain assets. This means that the seller is responsible for any liabilities associated with the business until the sale’s completion. However, the seller can negotiate with the buyer to ensure that they are not responsible for any liabilities that arise after the sale is completed.
3. Due Diligence
Due diligence is the process of examining a company’s financial and legal records to identify any potential issues that may affect the sale price or the buyer’s decision to purchase the company.
In a business sale, the buyer conducts due diligence on specific assets rather than the company. This means the due diligence process may be less extensive, as the buyer only looks at particular business assets rather than the entire company. However, this can also mean that the buyer may miss certain issues that may arise in the future, as they are not examining the whole company.
4. Cost
The purchase price of a share sale transaction and a business sale can vary depending on the size and complexity of the transaction.
In a share sale, the buyer typically pays more as they purchase the entire legal entity, including all its tangible and intangible assets, intellectual property rights and liabilities. Accordingly, this can make the sale more attractive for the seller, as they may be able to negotiate a higher price.
Key Takeaways
Ultimately, the decision to sell or purchase a business through a share sale or business sale will depend on your circumstances and priorities. While both options can result in the sale and purchase of a company, there are significant differences in control, liabilities, due diligence, and cost. Business owners and prospective purchasers should carefully consider their priorities and individual circumstances when deciding which option is right for them. Many individuals obtain financial and legal advice to ensure they make the best decision for their situation.
If you need legal advice on share sales and business sales, our experienced business sale lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Yes, expert business sales lawyers can advise of the tax treatment which will arise upon the sale or purchase of the target company, one example including Capital Gains Tax (CGT).
Yes, a lawyer can represent your company’s best interests throughout listing your business for sale, negotiating a deal and finalising it within legal documentation.
We appreciate your feedback – your submission has been successfully received.
