Structuring Business Sales

In the context of selling a business, there are a myriad of different structures which can be adopted, some of which can be pretty complicated. Notwithstanding this, the actual manner in which a business may be sold can essentially be distilled into two distinct categories: a sale of the shares of the company which operates the business and a sale of the assets which comprise the business.


LongmorelogoAs a result of a sale of shares, all of the target company’s assets and liabilities are indirectly acquired and assumed by a purchaser. Outsiders may not even be aware of the change in the identity of the owner of the company as there may be no obvious change to the manner in which the company continues to do business post-sale.


However, in a sale of assets, only those specific assets and liabilities which a purchaser agrees to acquire and assume will in fact transfer and the purchaser will become the owner of those assets, assume those liabilities and will (usually) continue to operate any underlying business itself. Therefore, a greater amount of flexibility generally arises in connection with a sale of assets because a purchaser is able to pick and choose which assets and liabilities it wishes to acquire and assume. Note however that if the flexibility for a purchaser to select specified assets and liabilities is crucial, but a sale of shares is desired, a pre-completion re-organisation of the relevant target company could result in that company owning the assets and assuming responsibility for the liabilities which the relevant purchaser necessarily requires.


From a logistical standpoint, sales of assets are often more complicated than sales of shares due to the need to transfer each of the separate assets and execute an agreed approach as to how any relevant associated liabilities will be dealt with. Various third party consents will need to be obtained in connection with this process. In the context of a sale of shares, change of control provisions contained in the contracts to which the target company is a party will also necessitate third party involvement and will need to be dealt with appropriately. Despite this, share purchase agreements are often lengthier than asset purchase agreements due to the usual requirement for the purchaser to be protected by a significant number of warranties (as the purchaser will be indirectly acquiring and assuming all of the target company’s assets and liabilities).


On the subject of tax, this is usually a crucial consideration for both sellers and purchasers alike. As a broad generalisation, the tax advantages of sales of shares are likely to be greater for sellers, whereas asset sales are often more tax efficient for purchasers. Issues such as the availability of entrepreneurs relief for individual sellers of shares and the ability of purchasers to claim amortisation relief in respect of the purchase price on certain intangible fixed assets are crucial when weighing up whether to structure a sale as one of shares or assets.


The decision of whether to structure a transaction as a sale of shares or assets is not black and white and will be heavily influenced by the bargaining strength of the relevant parties as well as various legal, tax, financial and practical factors which will impact upon the transaction. Prospective sellers and purchasers would be well advised to seek legal and tax advice at an early stage in order to assist with determining the best structure.


For further information on this subject, or to discuss your more general corporate requirements, please contact James Brawn (01992 512 771; or Craig Harrison (01992 305 257; at Longmores Solicitors LLP

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