To proceed with a share sale or asset sale: that is the question. Indeed, such a question is often asked at the very outset of corporate transactions with both parties, in a similar vein to Prince Hamlet, contemplating the pitfalls of proceeding with either but also acknowledging that the alternative might be worse…

The truth of the matter, is that there are usually a range of considerations, advantageous and disadvantageous to both a buyer and seller in deciding whether to proceed with either an asset or share sale. With that in mind, the purpose of this article is to provide its readers with a general overview of the key practical and legal factors buyers and sellers should consider when deciding whether to structure and proceed with a transaction as a share or asset sale.

Please note, this article is for general information purposes only and should not be used as a substitute for receiving legal and accountancy advice on how to structure a particular corporate transaction.

Parties to the Transaction

Firstly, who are the buyer and seller in the transaction? That’s straightforward right? Well, not necessarily… In an asset sale, the buyer and the seller will usually be two companies but in a share sale, the shareholders of the company and not the company itself, will be the seller. As we will see below, this is a key difference which factors in to other areas of consideration such as tax and trade continuity.

Choice of Asset and Liability

An advantage for both parties in proceeding with an asset sale, is that they both have the ability to cherry pick the assets of which they wish to transfer ownership. For the buyer, the benefit of being able to choose which assets they acquire, is that they can avoid acquiring assets where there are liabilities and do not have to take on any debt they do not wish to.

For the seller, the ability to cherry pick particular assets to sell can also be advantageous where it wishes to dispose of some and not all of the business. That said, an asset sale can be unattractive to a seller where they face the prospect of being left with any remaining liabilities. By comparison, in a share sale, the buyer is purchasing the company, together with all liabilities and assets “warts and all”, which allows the seller to obtain a clean break.

That sounds great from a seller’s perspective, doesn’t it? They’ve sold the business, can now retire and sail off into the sunset, buy that luxury sports car they’ve always wanted and that holiday home abroad regardless of whether there may be any underlying issues with the company they’ve just sold. The reality, however, is not so straight forward…

A buyer will usually seek to protect themselves as much as possible, by requiring the seller to give various warranties and indemnities about the state of affairs of the business. These warranties and indemnities are designed to act as a form of security blanket for the buyer that the value they paid for the company’s shares, is correct. If any warranties turn out to be untrue resulting in a loss in the value, the buyer can claim against the seller. Such contractual protection can take time and money to effectively negotiate and it is also worth keeping in mind (if you are a buyer), that an indemnity is only good if the seller can afford to pay any claim under it.

Ownership of Assets

In an asset sale, each individual asset will need to be transferred over to the buyer. The appropriate form of transfer will depend upon the type of property being transferred. This usually takes time, as the parties will typically need to involve additional parties. For example, the transfer of a commercial lease will require a deed of assignment of the lease (which may also require the consent of the landlord where the seller is a tenant). In the case of the transfer of an economic entity with employees, the Transfer of Undertakings (Protection of Employment) Regulations will apply, which will require consultation with the affected employees. The buyer will also receive less protection than on a share sale, as they should have assessed for themselves which liabilities they did not want to take on.

By comparison, on a share sale, the ownership of the entire company is transferred through a stock transfer form. Although, in respect of the transfer of assets, proceeding with a share sale should generally be more straightforward, the buyer should still be mindful of any “change of control” provisions that are present in contracts, which could result vital business being lost after completion and subsequently impacting on trade continuity. Speaking of trade continuity…

Trade Continuity

Where the parties proceed with an asset sale, each contract will need to be assigned. To transfer the contracts into the name of the buyer, they will need to be novated, which will require the consent of third parties. This can be disadvantageous to both parties, especially where completion of the transaction within a certain timeframe, is of utmost importance.

By comparison, in a share sale, only the ownership of the company changes (remember, the shareholders of the company and not the company itself, will be the seller). As a result, where contracts are in the company’s name, unless there is a change of control provision present within the contract, the consent of third parties will generally not be required. This is great for trade continuity as, on the surface at least, nothing changes… but scratch beneath the surface and a buyer may still find internal changes are required to the purchased company’s structure, in order to ensure synergy with the existing business of the buyer.


In an asset sale, the tax liabilities of the seller, stay with the seller.  Proceeding with an asset sale also offers a buyer more tax flexibility. For instance, if we consider capital allowances, a buyer will usually want plant and machinery valued high so they can claim as much writing down allowances as possible.

Whilst this sounds great from a buyer’s perspective and although a seller may benefit from available exemptions and reliefs to reduce any capital gains, a significant disadvantage to a seller in an asset sale, is the indirect receipt of the consideration for the sale of the assets, resulting in double taxation. Each asset transferred will have a separate capital gains tax liability and not only will the seller need to pay corporation tax on any capital gain, tax will also be paid again when it is passed on to the shareholders, either by incurring income tax as a result of being distributed as a dividend, or capital gains tax if the seller is wound up.

By contrast and as previously mentioned, when the parties proceed with a share sale, the buyer is purchasing the entirety of the company which includes the Good, the Bad and the Ugly. Whilst this means the seller will avoid paying tax twice, the buyer will indirectly end up acquiring any tax liabilities through the acquisition. For this reason, the buyer will typically obtain a tax deed of indemnity from the seller, so they are indemnified in respect of any tax liabilities that arise prior to completion of the sale.

It is also worth mentioning the following: –

–          for a buyer in an asset sale that includes the purchase of land and buildings, they will also typically need to pay Stamp Duty Land Tax whereas, on a share sale, Stamp Duty on the shares will be payable at a rate of 0.5% rounded up to the nearest £5.00 for transactions over £1,000.00; and

–          corporate sellers proceeding with a share sale may also be able to benefit from substantial shareholding exemption (an exemption from corporation tax on chargeable gains for gains made by corporate sellers on the sale of shares), providing the qualifying conditions are met.


In terms of VAT treatment on an asset sale, an advantage from a buyer’s perspective is that, where the assets are sold as a going concern, no VAT will be payable. Where the transaction proceeds as a share sale, no VAT will be payable by either the buyer or seller.

“Though this be madness, yet there is method in’t”

Ultimately how parties decide to proceed with a corporate transaction is very much up for negotiation. Of course, the bargaining strength of each party, availability of finances and desire to complete the deal will always very much factor into their decision making but, as hopefully demonstrated, there are also broader factors for the parties to consider.

For more information please contact Jonathan Masucci on 01622 759051 or by email to