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What the difference between a share sale and an asset sale ?

There are two basic structures for transferring a business.  An asset sale is where the buyer purchases a collection of assets and legal rights (and sometimes liabilities) relating to the business.  An example of this might be a grocery shop business where the buyer purchases the business premises, fixtures, fittings and equipment used by the business, stock and takes on the employees.  Most transfers of small businesses are asset sales. 

The other type of business transfer is a share purchase.  This type of business transfer is only available where the business is run by a limited company.  Rather than the buyer purchase the various elements of the business from the limited company, what happens is that the buyer purchases the limited company itself by acquiring its shares.

Under an asset sale, the seller could be any of a sole trader, partnership or limited company.  However, with a share transfer, this option is only available where the business being purchased is owned by a limited company.

Both types of business transfer result in ultimate ownership of the business changing hands but there are differences in legal and tax matters concerning the two methods.

Asset sale

The types of assets, rights and liabilities which might feature in an asset sale include:

Business goodwill

Business information and records

IT systems and software

Intellectual property rights

Plant and machinery

Leasehold or freehold premises


Work in progress

The benefit (or the burden) of contracts

The parties usually agree that certain assets used by the business are excluded from the sale.  Things like cash in the bank, debts and liabilities of the business and insurance claims are usually excluded.

The key advantage of an asset sale is that the buyer and the seller have great flexibility over what is included in the sale, what is excluded and exactly how the deal can be structured.

Whilst this is an advantage, it can mean that sometimes asset sales become more complex.  One example is where leasehold property is involved.  With an asset sale, the leasehold will have to be transferred specifically to the buyer.  This means that the landlord will need to be involved in consenting to and agreeing the terms on which the lease is transferred.  It also means that there will be additional legal costs including the landlord’s legal costs to pay as part of the transaction.

Another example is where contracts need to be novated and any assets which are on hire purchase have to be transferred specifically to the buyer and where this requires consent, from the hire purchase provider.

Asset transfers will almost always be subject to the TUPE regulations which means that the contracts of employment of all employees automatically transfers to the buyer at the time of the business transfer.

A key feature of asset purchases is that the tax treatment is generally very much less favourable than a share transfer.  There is potentially a VAT liability for one or both parties and there will be a Capital Gains Tax liability on the seller.

Share sale

In UK company law, a limited company has a separate legal identity to its owners (its owners being the shareholders).  This means that when a company carried on a business, it is the limited company itself which is the owner of the various assets and rights etc that make up the business.  It is not the shareholders that are the owners of the business, it is the limited company.  With a share transfer, the business itself does not change hands.  The business is still owned by the limited company but it is the ownership of the limited company that has changed.  

What this means is that unlike with an asset sale, all aspects of the business remain exactly as they were before the transfer has taken place.  It means that assets do not have to be transferred individually, it is only ownership of the company that has changed.

The key advantage of share transfers is that there is simplicity in that there is no need to transfer any individual assets, rights or contracts etc.  So, for example, if the limited company is the tenant under a lease, the landlord of the present premises does not need to be involved because ownership of the lease has not changed.

It means that it is not necessary to identify and account for every asset and piece of equipment etc owned by the company.  It all remains in place as it was. 

A share transfer allows for a cleaner break by the sellers of the shares.  It means all liabilities etc remain with the company and they step back from all of that at the point when they have sold their particular shares.

Because the employees are still employed by the limited company, there is no need to consult and inform them under the TUPE regulations.

The seller has big tax advantages with selling shares in a company, rather than being involved in an asset sale.  In most cases there is no Capital Gains Tax to pay and the seller will usually get 100% tax relief.  The buyer in a share transfer has to pay Stamp Duty on the shares purchased at 0.5%.
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We were approached by an operator who had received public inquiry paper several weeks earlier. The Operator instructed us to represent him at his inquiry listed for a hearing before the Traffic Commissioner’s (TC) only two weeks in advance.

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At the hearing we demonstrated that the companies were running professional and competent businesses. With specific reference to the issue of the apparent change of entity, the TC accepted that Section 3(4) of the Goods vehicle (licencing of operators) Act 1995 was relevant and that this was not a typical “change of entity” case – because of the companies being subsidiaries. We were able to persuade the TC that the issues that lead to the inquiry arose out of ignorance rather than an attempt to mislead or gain financial advantage

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