Buying or selling a Business
When it comes to buying or selling businesses, the two usual methods are either a share purchase or an asset purchase. Each method has its own advantages, disadvantages and implications for both buyers and sellers. The choice between a share purchase and an asset purchase can significantly impact the outcome of the deal, including tax consequences, liability exposure, and operational continuity. Whether buying or selling, it is crucial to understand the key differences, adopting the approach which best aligns with your business objectives.
Share Purchases
A share purchase involves the buyer acquiring issued share capital of a company from its existing shareholders. The buyer essentially acquires ownership of the entire limited company; a separate legal entity with its own assets, liabilities and contracts; being existing obligations which the purchasing shareholder ultimately assumes responsibility for. This is advantageous to a buyer who prioritises business continuity, but can pose significant risks when it comes to both known and unknown liabilities.
Asset Purchases
An asset purchase, on the other hand, involves the buyer acquiring specific assets and liabilities from the seller’s business. This enables a buyer to cherry-pick desired assets such as property, equipment, intellectual property and goodwill, leaving behind any liabilities it does not wish to assume. This arrangement may be preferable to buyer who prefers a less complex transaction with reduced risk exposure.
Key Considerations with Share Purchase or Asset Purchase Agreements
A share purchase is ideal where a purchaser would like to purchase the entire target company as a going concern, or in other words, they would like to keep the business running as it is. A share purchase allows a purchaser to take advantage of the target company’s existing customer base, market position, employees, contracts and any intellectual property or other rights without further specific transfers of the same. This option may serve best when you value the company’s overall package and want to maintain its current operations without disturbance.
Asset purchases, conversely, offer more flexibility, enabling a purchaser to enhance their existing business or achieve specific strategic goals without the full commitment and risk of buying an entire company. It is typically advantageous for a buyer who seeks a more targeted and controlled method of acquiring specific business assets, allowing for increased flexibility in structuring the transaction and reduced exposure to the seller’s liabilities and obligations.
Seek Legal Advice with Share Purchase or Asset Purchase Agreements
Given the complexity and potential long-term implications of both share purchase and asset purchase agreements, it is crucial to seek professional legal advice. Whether you are on the buy-side or the sell-side of an acquisition, our Commercial Team is here to help you navigate the complexities of these transactions, ensuring the chosen approach best aligns with your specific business objectives.
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