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Share sale vs asset sale – what’s the difference?

There are two types of sale and purchase of a business – a share sale and an asset sale. They are very different from each other and it is important to understand how each work so that you know what you are letting yourself in for. Here we highlight the key factors for a buyer to consider.

An asset purchase is where the buyer cherry picks certain assets and rights of a business which are owned by the seller; and a share purchase is where the buyer acquires ownership of the shares in the target company meaning that all the assets and liabilities are included. There will be several factors which will influence how the deal will be structured.


Both transaction forms will involve due diligence as a buyer will want as much information as possible to allow them to make an informed decision.

Asset purchase:

However, as the buyer will only be taking on the assets which have specifically been identified and agreed between the parties to form part of the sale, this may involve less due diligence and time spent on the information and document gathering stage as documentation pertaining to any liabilities will not be heralded necessary to provide.

Any warranties offered (i.e. contractual assurances the seller will give to the buyer regarding the state of the business or particular asset/s) will be reduced to reflect the decrease in areas of risk linked to liabilities which of course will not be taken on.

Share purchase:

The due diligence process may be more lengthy for a share purchase transaction as a buyer will want to ensure all information is provided relating to assets and liabilities and therefore naturally more information will need to be enclosed and reviewed.

The warranty protection required will also be more comprehensive as the buyer will want to ensure the seller provides as much information, documentation and as many assurances as they can. This will be beneficial for the seller too to prevent any future breach of warranty claims from the buyer if the seller can show it reasonably disclosed information at the time the due diligence was conducted.


Asset purchase:

The procedure for an asset sale can often be more complex as it requires the parties to identify the assets being sold and retained by the seller; deal with asset transfer formalities (legal title has to be transferred individually per asset to the buyer); and obtain third party consents which can be timely and expensive (i.e. obtaining landlord’s consent to the assignment of a lease).

Share purchase:

Under a share sale, a buyer purchases the shares of the company and by doing this, all the assets and liabilities of the company come under the control of the buyer.


Asset purchase:

An asset purchase allows the buyer to cherry pick the assets of the business it would like to purchase and which liabilities (if any) it will take on. The assets and liabilities which do not make the cut, remain with the seller. This ability to leave liabilities with the seller acts as a sweetener in conducting transactions in such a way for the buyer and assists particularly where the target business has several liabilities which the buyer would not want to take on.

Share purchase:

A share purchase on the other hand requires all assets and liabilities to be transferred to the buyer as they remain within the company and hence the buyer takes on lock, stock and barrel.


Asset purchase:

A potentially less appealing aspect of an asset purchase is that the transaction is more likely to be caught by the Transfer of Undertakings (Protection of Employees) Regulations 2006 (TUPE).

Under TUPE, the seller’s employees transfer to the buyer automatically by law on the current terms of their employment and so a buyer will inherit all employment-related liabilities concerning those employees and a specific procedure must be followed by the buyer (and seller), to inform and consult their employees.

Share purchase:

However, with a share sale, these regulations may not apply due to there being no change in the identity of the employer. However, specific advice should be taken as recent case law has shown examples where TUPE considerations have come into play in relation to a share sale.


Asset purchase:

An asset purchase will of course involve the sale of particular assets and so a price will usually be attributed to each asset and the overall price is therefore more likely to be known at completion allowing the buyer (and seller) peace of mind.

Share purchase:

Conversely, in a share sale, the price may be adjusted post completion and this is usually done following the production of completion accounts. Therefore, share purchases do not always provide the buyer (or seller) with certainty over what is to be paid as consideration for the purchase price.

There are many factors to consider when you are thinking of purchasing a company and deciding on the preferable form you would like it to take. The process can be rather complex so it is prudent to compare an asset purchase and a share purchase by weighing up the pros and cons before making an informed decision.

For further information or advice on buying and selling a company, please contact our Commercial Team on 01733 882800 or email [email protected].

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