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Do I buy the shares or assets when acquiring a business?


This is one of the first questions to consider when looking at how to structure a business acquisition.

Essentially, a share sale is where the purchaser acquires the company itself by taking a transfer of shares in the target company. An asset sale is where the purchaser acquires some, or all, of the assets and liabilities of the target company, together with the business, leaving the shares in the vendor company with its shareholders.

If the business is run by a sole trader or a partnership there will be no shares to buy. In this case, it is the assets, including contracts and goodwill of the business, that are being sold by the seller.

Though not always the case, a buyer will normally prefer to buy the assets of a business and the seller will prefer to sell the shares. There are a number of reasons for this.

Seller’s view

  • A clean break (sort of): If a shareholder sells his shares in a company, he or she achieves a complete break in the relationship between them and the company (though the buyer will probably insist on some warranties and indemnities about the company, which will continue to bind the shareholder after the sale).
  • Debts: Assuming the seller of shares is released from all third party guarantees, for example as a director, and any personal guarantees given to the bank, at completion he, or she will have no liability for the debts of the business which remain the responsibility of the company in the hands of the new owners.
  • Asset sale: If there is an asset sale, the seller will keep all the current liabilities of the business, unless he can negotiate with the buyer to take them over with the business.
  • Purchase price and tax considerations: By selling the shares, the selling shareholder will usually receive the purchase price directly, whereas in an asset sale the money is received by the selling company. The owners of the company then have the problem of extracting that money in the most tax efficient way.

Buyer’s view

  • Maximising value and reducing risk: The buyer will generally prefer to buy the assets and goodwill of a company, as this will enable him to pick exactly which assets he is buying and identify precisely those liabilities he wishes to take over. All other liabilities will be left with the seller.
  • Warts and all: When buying shares, a buyer takes the company ‘warts and all’. Although the buyer can take warranties and indemnities from the seller, they risk expensive future litigation to recover monies under the warranties/indemnities.
  • Purchase price: Sometimes the buyer may be advised to keep back part of the purchase price as security against unwelcome undisclosed liabilities after completion.

There are, of course, numerous instances where a buyer will prefer a share sale, for example, where business contracts are non-transferable, if there are tax losses that can be set against future profits to minimise tax liabilities, or if the buyer does not want to alert the company’s customers to a change of ownership.

Getting this wrong can be costly and the decision to buy or sell shares or assets should be one of the first points you agree during initial negotiations.

If you would like to discuss this, or any other mergers and acquisitions matter, please contact David Filmer on 01772 258321, or at

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