When buying or selling a business, we commonly talk about the transaction being structured as either a share transaction or an asset transaction. In practice, the buyer and seller may have specific objectives that require the parties\u2019 advisers to structure the transaction in a hybrid form. This hybrid form combines elements of both asset and share transfers. However, this may mean that before the transaction completes, the seller must restructure some or all of the existing business before the buyer takes ownership. This article will explain what is a pre-sale restructure and why certain business transactions may adopt a hybrid structure. <\/p>\n\n\n\n
Generally, when one business wants to buy part or all of another business, the buyer will either acquire:<\/p>\n\n\n\n
There are several benefits and disadvantages to both kinds of transactions. Generally, buyers prefer asset sales because they can pick the individual assets they want to pay for, such as land, machinery, and intellectual property<\/a>. This is less preferable for the seller, as they may still have to shoulder certain liabilities even after the assets are sold.<\/p>\n\n\n\n Conversely, sellers prefer share sales because once the shares are transferred, they have little connection to the business contained in the company. Instead, the buyer indirectly assumes the benefit and the liabilities attached to the new company as the new shareholder. <\/p>\n\n\n\n Parties to a business transaction may want to structure the transaction as a hybrid structure due to the:<\/p>\n\n\n\n In practice, both factors may play a part in the parties\u2019 decision to use a hybrid structure. Consider the following example. <\/p>\n\n\n\n Say you own a retail business called YouCo and are looking to purchase the retail division of a competitor\u2019s business. From a negotiation perspective, you may not be prepared to acquire the retail division unless <\/em>the transaction includes the assets the competitor holds. Conversely, the competitor may not wish to transfer all the relevant assets for tax and legal purposes. Nor does the seller want to simply transfer the shares in the retail company since the seller does not wish to part with them.<\/p>\n \n Instead, the seller may undergo a complex restructuring before selling the relevant business. This restructuring may entail creating a new company called NewCo, where certain assets or shares are transferred. Hence, you will acquire this newly restructured business.\u00a0<\/p>\n<\/div>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nLimitations on Asset and Share Transactions <\/h2>\n\n\n\n