Structuring a Business Purchase – Assets or Shares?

One of the first things that should be considered when it comes to selling or purchasing a business will be how the deal is to be structured. Whether this consists of a sale of shares in a company or the assets belonging to the business will often be determined by who the seller is.

If the seller is a sole trader or partnership then a sale of shares is of course out of the question as there are no company shares to sell. If the seller operates their business however as a company, then the business can be sold by the shareholders selling their shares, or by the company selling its assets to the buyer. Which way is best will depend on a number of factors and the circumstances of the individuals connected. Factors that are often taken into consideration include the following:

• Tax – There may be bigger tax liabilities for selling a business one way instead of the other. For example, if a business owner has their company sell its assets, the money goes to the company and the shareholder needs to think about how the money can be extracted from the company. It is therefore important that you seek independent financial advice from the outset.
• Continuity – Is the buyer wanting to continue to run the business in the same way as the seller, so that from the outside looking in, it looks like nothing has changed? If so then a share purchase may be best to achieve this as employees, customers, suppliers and third parties will continue their relationship with the company rather than the buyer.
• Cherry picking – From the seller’s perspective, the thought of selling the company assets whilst keeping the liabilities will not be appealing, the clean break that they would get with a share sale is often favoured by sellers but not always. If the Seller only wants to sell some of the company assets, or it they want to continue to trade after completion then a share sale may not be practical. An asset sale will allow a buyer to cherry pick only the assets they require and leave liabilities behind so is often favoured by buyers.
• Due diligence – As part of the process of purchasing a business, the buyer will want to carry out some level of investigation and enquiry (known as “due diligence”) on the business. If the deal consists of a sale of assets, then there is likely to be less due diligence involved as this will only be in connection with the assets for sale. If the shares in a company are being sold, then the level of due diligence is likely to be increased. This is because the company liabilities are included as well as all of the company’s assets.
• Practicality – Some assets are practically more difficult to transfer than others, particularly non-tangible assets or where there is third party involvement. Therefore, for practical reasons, a share sale may be a simpler option in such circumstances.
• Other factors – How the deal is structured may be determined by industry specific external regulation or licences that may be required to run the business. Furthermore, the existing company structure of the buyer or seller may mean that one method is more favourable than the other.

How Hopkins Solicitors Can Help

If you are looking to buy or sell a business we have a highly experienced team of Company Commercial solicitors that have helped hundreds of local businesses through this complicated and risky process.

Please feel free to contact our Commercial Legal Team on 01623468468 for a friendly chat or use the enquiry form below.