If you are thinking about buying or selling a limited company, then there are two main options.
One option is to buy or sell the shares of the company; the other is to buy or sell the assets from the company. In a deal where the business is run by a sole trader, then you can only buy or sell the assets.
There are different factors to be aware of, depending on how you structure the sale:
- If shares in a company are purchased, all the company’s assets, liabilities and obligations are acquired (even those that a prospective buyer may not be aware of)
- When only the assets are purchased, then only the assets (and liabilities) which the buyer agrees to purchase – and which are identified in the sale agreement – are acquired
Pros and cons
An asset purchase is often more complicated than a share purchase because each of the separate assets which form the business needs to be transferred. Don’t forget, it is necessary to obtain approvals of any third parties who may have an interest in a particular asset.
On the other hand, a share purchase is often the subject of longer documents because the buyer will want protections built in to cover them against any hidden liabilities within the company.
Be aware that there is a greater amount of flexibility in an asset purchase and a buyer will often choose this option to enable the opportunity to select the assets they wish to acquire, rather than simply buying a company, warts and all.
With a share purchase, the buyer will acquire the whole company; continuing under their new ownership with all the contracts in place. This is particularly relevant in terms of employment contracts for staff as the provisions of TUPE do not apply in the case of a share sale.
Tax issues are also an vital consideration for both buyer and seller when deciding on the appropriate method of business transfer. Specialist tax advice should always be sought.
Generally speaking, a share purchase will usually be of greater benefit to a seller, where as an asset purchase will often be more tax efficient for a buyer.
Ultimately the right choice of share or asset sale will depend on your legal, financial and personal considerations. Contact Louise on 07919 164 500 or email firstname.lastname@example.org for professional advice at an early stage to help determine the best route for you.