If your business is organised as a company, the sale can be carried out by selling the shares or selling the assets.
It is worth recognising the pros and cons of each option, and it is one of the many issues you will need to think about when exiting your business.
Overview - share versus asset sale
Sellers generally prefer to sell shares as that is cleaner for them and more tax efficient. Buyers generally prefer to purchase assets rather than shares, so that unwanted assets and liabilities are left with the seller.
Share sale: You sell the company carrying out the business by transferring all your shares over to the buyer. The new owner effectively steps into your shoes, and takes over the complete package of assets and liabilities of the business. The transaction is between you (not your company) and the buyer. The buyer makes payment to your personal account (not to the company’s bank account).
Asset sale: In this case, the deal is between your company (not you) and the buyer, with the money being paid into your company's bank account. The assets of the company that the buyer wants to buy are transferred to the new owner. After the sale you will still be the owner of the company but it will have little or no assets, but will still have liabilities. Your company can use the money received from the buyer to pay off the liabilities.
Features of a share and asset sale
You should be thinking about these ten features between selling shares and selling assets.
1. Customers
Share sale - Customers will transfer over seamlessly.
Asset sale - Existing customer contracts will not transfer over with the assets, they will remain with the company. If the buyer needs these relationships, these will have to be re-negotiated. Customers who have signed up to automated payments will need to make changes to their payment details for their payments to the buyer's company.
2. Suppliers
Share sale - Relationships with suppliers will also transfer over and will not need to be renegotiated. There is no break to the business, it continues without interruption.
Asset sale - Existing arrangements with suppliers will not transfer over. If the buyer needs these relationships, these will also need to be re-negotiated.
3. Property
Share sale - The lease is entered into by the company, and by acquiring shares the buyer obtains the title to the property in the company name.
Asset sale - The landlord will need to be involved to transfer the lease to the new owner. This may take time.
4. Other assets
Share sale - The company (not the owners) holds the assets, and by acquiring shares the buyer obtains title to all the assets in the company name.
Asset sale - Third party approval of the transaction will sometimes be required to transfer assets, which may be problematic. The value in some assets may be lost altogether, since assets such as permits and licences often cannot be transferred to the buyer and any investment made in developing those assets will be lost.
5. TUPE
Share sale - Not applicable.
Asset sale - Buying the assets of a business often triggers Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). The buyer may be responsible for taking on all the employees of the business on the same terms they enjoyed before.
6. Risk
Share sale - Selling shares is cleaner for the seller as the business liabilities transfers to the buyer through the company. The buyer is, however likely to insist on more extensive protections and will want the seller to provide warranties, guarantees and indemnities to limit their risk.
Asset sale - Only specific assets transfer to the buyer and business liabilities remain with the seller through the company.
7. Due diligence
Share sale - The buyer will usually want to carry out extensive investigation on the business. Share sales typically take longer to complete than asset sales.
Asset sale - As there is less due diligence for the buyer to perform in an asset sale, the transaction can often be completed more quickly.
8. Capital gains tax
Share sale - The seller will often be able to take advantage of Entrepreneurs' Relief (and CGT allowance and other tax breaks) to remove part or all of the tax liability.
Asset sale - The different categories of assets will have to be treated differently for tax purposes. If on a capital asset the seller has claimed capital allowances and then sold the asset for more than the book value, the seller may be liable to a "balancing" charge. There is a potential for the seller to be taxed twice. If the business sells assets at a gain it will have to pay tax on those profits made, and when those profits are distributed to the shareholder/s (usually via dividends), they may be taxed again.
9. Corporation tax
Share sale - The buyer may be able to use any accumulated losses in the company, to write off future corporation tax liabilities.
Asset sale - Not applicable.
Related Sales & Aquisitions Content
Deferred Consideration - Paying for a business in instalments
Exit Management Plan - How to maximise the sale potential of your business
How to sell a limited company in the UK - The legal things to consider
10. Stamp duty
Share sale - The buyer will be liable for stamp duty which is at 0.5% of the value of the shares.
Asset sale - Not applicable.
It will be a matter for negotiation
Whether to go for a sale of shares or a sale of assets is often a matter for negotiation between the parties. For example, a buyer who prefers an asset sale may be persuaded to accept a share sale instead if the seller is willing to make a concession on price.