When planning to buy or sell a business, one of the most important decisions is how the transaction will be structured. Choosing the right route can significantly impact the outcome of the deal, so it’s essential to understand the differences from the outset.
At Swinburne Maddison, we regularly advise clients on the two main approaches, share purchases and asset purchases, and help them navigate the legal, commercial, and tax implications of each.
Whether you’re a business owner planning your exit or an entrepreneur looking to grow through acquisition, understanding the difference between a share purchase and an asset purchase is essential.
Share Purchase: Taking over the whole business
In a share purchase, the buyer acquires the shares of the company directly from the existing shareholders. This means the buyer takes ownership of the company as a whole, including all assets, employees, contracts, and liabilities.
While this route can be more straightforward in terms of continuity (as the company itself doesn’t change), it also means the buyer inherits any historic liabilities. That said, protections such as warranties and indemnities can be negotiated as part of the sale agreement to help manage risk.
This structure is often preferred by sellers, particularly for tax efficiency and because it allows for a complete exit from the business.
Asset Purchase: Picking and choosing what you buy
In an asset purchase, the buyer acquires specific assets and liabilities from the company, rather than the company itself. This allows the buyer to be selective about what they take on, whether that’s equipment, contracts, intellectual property, or other assets.
However, this route can involve more complexity. Certain assets may require third-party consents or formal transfer processes. Under UK law (specifically TUPE), employees may automatically transfer to the buyer on their existing terms, and there may be obligations to inform and consult with them before completion.
Buyers often favour asset purchases as they can limit exposure to unwanted liabilities and tailor the acquisition to their strategic needs.
Which route is right for you?
There is no universal answer. Sellers often lean towards share sales for tax reasons and the simplicity of a full exit. Buyers, on the other hand, typically prefer asset purchases to reduce risk and gain more control over what they acquire.
Regardless of the route, thorough due diligence is essential. Buyers must ensure they have a clear understanding of the business, its obligations, and any potential risks before proceeding.
Moving forward
At Swinburne Maddison, our corporate team has extensive experience advising on both share and asset transactions. We work closely with clients to assess their goals, structure deals effectively, and negotiate terms that protect their interests. Whether you’re buying or selling, we’re here to guide you through the process with clarity and confidence.
If you’re considering a business sale or acquisition, contact Rebecca Logue at
rebecca.logue@swinburnemaddison.co.uk or call our Corporate Team on 0191 384 2441.
