When you are planning selling your business, you will need to consider how the business sale is structured.
There are two different business sale structures you can chose from- a share sale and an asset sale. While the purpose behind each of them is to sell a business, they both have very different processes, aims and outcomes. Alex Robinson, a trainee in our Corporate & Commercial Department guides you through the key differences between the two structures.
What is an asset sale?
A business is an umbrella term and encompasses many different parts such as the name, assets, building, machinery, staff, liabilities and so on. With an asset sale, the seller and the buyer can agree on which parts of the business are to be sold. They can mix and match in order to suit their wants and needs.
What is a share sale?
In a share sale, instead of the buyer and the seller being able to agree on which parts of the business are sold, the whole business will be sold. The buyer will acquire the shares in the company and will own the company and the company will own everything else.
What are the differences between an asset sale and a share sale?
The Seller
- In an asset sale, the company will be the seller.
- In a share sale, the seller will be the shareholder(s) that own the shares.
Tax implications
- In an asset sale, the proceeds of the sale will go to the company firstly and then will need to be extracted from the company. This could result in a 'double tax' charge and highlights the importance of having a competent solicitor.
- In a share sale, the sale proceeds will be paid directly to the company shareholder(s). This may result in lower tax liabilities and may allow for eligibility for Business Asset Disposal Relief.
Employee considerations
- In asset sales, the issue of employees is more complicated. If the employees form part of the deal and the business is sold as a going concern, both the buyer and seller must adhere to TUPE. Any dismissals made because of this are likely to give rise to unfair dismissal and risk employment tribunal claims.
- In a share sale, the employees will remain contracted to the company. There is effectively no transfer, and they will still be employed under the same terms.
If you'd like to learn more about asset sales vs. share sales, click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
