{"id":896,"date":"2021-12-23T00:08:14","date_gmt":"2021-12-23T00:08:14","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=896"},"modified":"2024-05-10T08:20:38","modified_gmt":"2024-05-10T07:20:38","slug":"share-sale-vs-asset-sale","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/business-sale-purchase\/share-sale-vs-asset-sale\/","title":{"rendered":"What is a Share Sale Versus an Asset Sale in England and Wales?"},"content":{"rendered":"\n

When a buyer decides to acquire a business<\/a>, they may do this in one of two ways. They can acquire through a share sale or an asset sale. Whether you are a buyer or a seller, it is essential to familiarise yourself with the advantages and disadvantages of both. Ultimately, whether you choose to use a share sale or an asset sale will depend on your business preferences.\u00a0<\/span><\/p>\n\n\n\n

This article will explain some of the key differences to help you understand both a share sale and an asset sale. <\/span><\/p>\n\n\n\n

What is a Share Sale?<\/span><\/h2>\n\n\n\n

A share sale is where the buyer will acquire enough shares in the business to become the new owner. This occurs through a share purchase agreement (sometimes known as a stock transfer form) for a majority of the company’s shares. <\/span><\/p>\n\n\n\n

By taking enough of the shares to become an owner, the new owner will also inherit all of the business’s assets, liabilities, and obligations. The assets of the company will include both tangible assets and intangible assets. <\/span><\/p>\n\n\n\n

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Tangible assets physically exist (such as property, land, stock, and machinery). On the other hand, intangible assets do not physically exist and include intellectual property and goodwill (for example, brand recognition and public image). <\/span><\/p>\n<\/div>\n\n\n\n

In other words, by acquiring through a share sale, the business will run as usual but with a new owner. <\/span><\/p>\n\n\n\n

Pros and Cons of a Share Sale<\/span><\/h3>\n\n\n\n

A share sale allows the seller to have a clean break<\/strong> from the business. Because the buyer takes on all assets and liabilities, the seller usually does not remain connected to the business after the transaction is concluded. In this way, a share sale can be a discreet way of selling the business. Your employees may not even realise that the business has changed ownership. <\/span><\/p>\n\n\n\n

A buyer, however, might look to mitigate risk by asking the seller to agree to certain indemnities and warranties as conditions of the sale. Alternatively, they may also try to negotiate a discount on the price of the shares to reflect some risks that they may be taking on. Those risks may include market volatility, for example, as well as the value of your shares<\/a>. Because of this, a share sale might lead to your business being valued for less<\/strong> than the total sum of its assets. However, a share sale has historically been more tax-efficient<\/strong> than an asset sale. <\/span><\/p>\n\n\n\n

Finally, a share sale will usually be a lengthy process<\/strong>. Depending on the size of the company issuing shares, the’ due diligence’ phase can take a while. Due diligence refers to the process of researching the business and learning all relevant information. <\/span><\/p>\n\n\n\n

What is an Asset Sale?<\/span><\/h2>\n\n\n\n

In an asset sale, the buyer acquires only the business’s assets. Like a share sale, this will include both tangible and intangible assets. <\/span><\/p>\n\n\n\n

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The key difference between an asset sale and a share sale, in terms of the agreement structure, is that an asset sale involves the buyer acquiring only certain assets. By doing so, the buyer does not inherit all of the business’s liabilities and may not even inherit all of the assets. <\/span><\/p>\n<\/div>\n\n\n\n

Unlike a share sale, an asset sale does not necessitate a change of ownership. The business can continue to run as it did before, but with new owners of some assets. <\/span><\/p>\n\n\n\n

Pros and Cons of an Asset Sale<\/span><\/h3>\n\n\n\n

An asset sale allows the seller to retain parts of the business<\/strong> they want to keep for themselves. Because of this, the seller is not entirely unconnected to the business after the transaction is completed. This may be preferable to the seller, depending on the specific details of the business being sold. For example, the seller may wish to retain some of the assets to sell to another seller later. <\/span><\/p>\n\n\n\n

An asset sale generally involves fewer risk<\/strong>s than a share sale. As a result, the price of the assets is less likely to be discounted to mitigate against risk. Similarly, the seller may not have to enter into multiple burdensome indemnities and warranties with the buyer. In addition, if the seller does give warranties and indemnities, those warranties are issued in the company’s name rather than the individual seller. This is always useful as it limits personal liability<\/strong>. <\/span><\/p>\n\n\n\n

Alongside this, the due diligence phase of an asset sale is usually less lengthy<\/strong> than that of a share sale. <\/span><\/p>\n\n\n\n

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However, there are some cons of an asset sale. Firstly, an asset sale is usually not as tax efficient as a share sale. In addition, the agreement may be more complex. Instead of issuing a simple share purchase agreement, the seller may have to go to great lengths to ensure that all of the different parts of the business are transferred correctly. Finally, transfer of assets may include formalities (depending on the type of asset), so it is advised that you seek legal advice before proceeding with an asset sale. <\/span><\/p>\n<\/div>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n

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