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What each structure means
In a share sale, the buyer acquires the legal entity itself — all contracts, assets, liabilities, and history transfer automatically with the shares. In an asset sale, the buyer purchases defined assets (plant, intellectual property, goodwill, customer lists) from the company, leaving the corporate shell — and its historic liabilities — with the seller. The distinction matters legally, commercially, and for tax.
Why sellers usually prefer share sales
For individual shareholders in a UK limited company, proceeds from a share sale are typically subject to capital gains tax rather than income tax, and Business Asset Disposal Relief (previously Entrepreneurs' Relief) may reduce the effective CGT rate if conditions are met. An asset sale, by contrast, produces a gain in the company — when the proceeds are then extracted by the shareholders, a second layer of tax may apply. Confirm the precise tax outcome with a corporate tax adviser before agreeing structure.
Why buyers usually prefer asset sales
A buyer in an asset sale does not inherit the target company's historic liabilities — tax debts, employment claims, or undisclosed litigation stay with the seller's entity. The buyer can also choose which assets to acquire, excluding unwanted ones. Additionally, certain assets (notably goodwill and qualifying intellectual property) may attract capital allowances on an asset purchase, giving the buyer a future tax deduction that would not arise in a share purchase.
Negotiating the structure
Where the seller's tax preference (share sale) and the buyer's preference (asset sale) conflict, the parties sometimes find a middle ground through a price adjustment — the buyer pays more for a share sale to compensate for the additional liability risk, or the seller accepts a lower price in an asset sale to reflect the buyer's cleaner position. The right answer depends on the specific deal, the nature of any historic liabilities, and both parties' individual tax positions.
Frequently asked questions
What happens to employees in a share sale versus an asset sale?
In a share sale, employees remain employed by the company — their contracts are unaffected. In an asset sale, where the transaction qualifies as a Transfer of a Going Concern, employees transfer automatically under TUPE regulations with their existing terms protected. Confirm employment law obligations with a solicitor.
Can contracts be assigned in an asset sale?
Customer and supplier contracts belong to the company, not to its assets, so in an asset sale each key contract must be novated — with the counterparty's consent — to transfer to the buyer. This can delay deals where there are many contracts or where key counterparties are reluctant to consent.
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