What is the difference between share purchase and asset purchase? Corporate & Commercial
A share purchase means taking over a company. The target company is a separate legal entity which will include all of its assets, liabilities and obligations and consequently any inherent or historic problems. One benefit is that continuity is maintained as contracts with employees, suppliers and customers remain in place subject to any specific “change of control” provisions. For a seller, they are taxed on the proceeds of the disposal of their shares.
An asset purchase is the transfer of a specific business activity and related assets and employees. The buyer can cherry pick the assets it wants or more particularly (other than in respect of employees) identify what, if any, liabilities it will take on. The appropriate formalities for the transfer of all assets included in the sale are required. Contracts with suppliers and customers do not automatically transfer and will need to be assigned. However, contracts with employees and pre-completion liabilities transfer by operation of law under the ‘TUPE’ regulations.
Other than in respect of employees the attraction for a buyer is that they are isolated from historic risk factors. For an individual seller the tax consequences may not be as attractive.