Share Sale vs Asset Sale

 

 

When it comes to selling your business, you will choose which route to go: a share sale or an asset sale. As a business owner or a potential investor, understanding these differences is crucial to making an informed decision that aligns with your strategic and financial goals. Let’s explore the key differences between share sales and asset sales to help you navigate the complexities of buying or selling a business.

 

What is a share sale?

 

In a share sale, the buyer purchases the shares of the company from the current shareholders. This means the buyer is acquiring the entire entity, including all assets, liabilities, and legal responsibilities. Here are the primary characteristics and implications of a share sale:

 

  1. Transfer of Ownership

   – The buyer assumes control of the company as it stands, including all assets and liabilities.

   – There is a straightforward change in ownership without the need to transfer each asset individually.

 

  1. Tax Implications

   – Sellers may benefit from capital gains tax exemptions or lower tax rates on the sale of shares (depending on jurisdiction).

   – Buyers inherit all historical tax liabilities and positions of the company.

 

  1. Legal Continuity

   – The legal entity remains the same, preserving all contracts, employment relationships, and operational agreements without the need for novations or assignments.

   – This can simplify the transition and maintain business continuity.

 

  1. Due Diligence

   – Due diligence in share sales is typically more extensive, as buyers need to thoroughly understand all aspects of the company, including potential liabilities and legal risks.

 

What is an asset sale?

 

In an asset sale, the buyer purchases individual assets of the company, such as equipment, inventory, and intellectual property. The seller retains the original legal entity and any liabilities not expressly assumed by the buyer. Here’s what characterizes an asset sale:

 

  1. Selective Acquisition

   – Buyers can pick and choose specific assets and liabilities they want to acquire.

   – This method offers flexibility and allows buyers to avoid inheriting unwanted liabilities.

 

  1. Tax Implications

   – Buyers often benefit because they can allocate the purchase price among the assets for depreciation and amortization.

   – Sellers may face higher taxes, as the sale of assets can be subject to ordinary income tax rates.

 

  1. Legal Considerations

   – Each asset and contract may need to be individually transferred to the new owner, possibly requiring consent from third parties.

   – The process can be complex and time-consuming, depending on the nature and number of assets involved.

 

  1. Operational Impact

   – An asset sale can disrupt operations since it may not include transferring employees or management teams.

 

Choosing the Right Approach

 

The decision between a share sale and an asset sale depends on multiple factors, including the buyer’s and seller’s tax circumstances, the nature of the business’s liabilities, and strategic goals. For example, a share sale might be more appropriate for those who wish to take over an operational business seamlessly. In contrast, an asset sale might be preferable for those looking to integrate specific assets into an existing operation without assuming prior business liabilities.

 

Conclusion

 

Both share sales and asset sales offer distinct advantages and disadvantages. Business brokers play a vital role in guiding sellers and buyers through the complexities of each type of transaction, helping them understand the implications and strategize accordingly. A R Business Brokers has an experienced team ready to help you in the process of selling your business. Get in touch with us today.