What Are the Key Differences Between an Asset Purchase and a Share Purchase?

When buying a limited company, you can either buy the assets or the shares of the company. The reality is that the decision will often be lead by the advice of your accountant. However, if there isn’t a particular advantage from a tax / accounting perspective, then the below summary may give you a better indication as to whether you want to purchase the assets or the shares of the company.

Share purchase

When you purchase the shares of a company you are agreeing to take on all of the assets and all of the liabilities of the company, whether or not you are aware of them. There will therefore be greater risk for a buyer when purchasing the shares of a company.

When purchasing the shares of the company, you have the advantage of taking on the company’s registration number. With this, you are also taking on the company’s trading/credit history. This may be key if you are buying a company with a good trading/credit history.

Due to the greater risk to the buyer when purchasing the shares of the company, rather than the assets, the buyer will generally require a greater number of warranties from the seller, which will result in a more extensive and complicated sale and purchase agreement. Warranties are statements of fact from the seller to the buyer about the company, the assets, the accounts etc of the company. To the extent that those warranties are untrue and that causes the buyer some loss, the buyer may be able to recover that loss from the seller.

The employees will remain with the company under their existing terms.

Any contracts to which the company is a party (including any lease) will continue under their existing terms.

Asset Purchase

When you purchase the assets of the company you are effectively cherry picking which of the assets of the company you want. This gives you absolute certainty as to which assets you are taking on.

You will not assume any liabilities of the company, other than those that you expressly agree to do so. Again, this gives you absolute certainty.

Due to this, it is common for a buyer to prefer to purchase the assets of a company, rather than the shares. It should be noted, however, that if the buyer is using a new company as the purchasing vehicle, that company will have no trading / credit history and suppliers may be reluctant to supply to you.

Under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) all of the employees of the target company will automatically transfer across to your new company, whether or not you want to take them on. The employees will transfer across on the exact same terms that they are currently employed.

Any contracts to which the company is a party will generally be assigned to the buyer.

If the company leases the property from which it operates then discussions with the landlord will be needed to determine whether the buyer will simply continue with the company’s existing lease – in which case that lease will be assigned to the buyer – or whether the landlord wants the buyer to enter into a new lease – in which case the terms of the lease may differ to the existing lease.

Conclusion

From a legal perspective, it is generally considered that a share purchase is more favourable for a seller, whereas an asset purchase is more favourable for a buyer. Some form of compromise will therefore be required between the proposed buyer and the seller.

If you would like to discuss any of the above points in any more detail, including discussing the potential sale or purchase of a business, then please don’t hesitate to contact one our of solicitors by email or by calling 0845 287 0939.