When selling a business in the UK, there are two primary methods that can be used in order to achieve the desired commercial objective. These methods are known as an asset sale and share sale. Although both methods can be successful, there are significant legal and tax differences between the two that must be taken into account.
Commercial law and startup experts Crest Legal explain how to approach the sale.
Asset Sale vs. Share Sale
An asset sale generally refers to the buyer acquiring a bundle of assets and rights from the seller in relation to the business. This may include things like machinery, equipment, inventory, goodwill, and other intangibles. The buyer may also assume responsibility for certain liabilities associated with the business.
In contrast, a share sale involves the buyer acquiring all of the shares in the company which carries on the business. This means that the buyer will become the new owner of the company and will assume all rights and responsibilities associated with ownership.
Legal and Tax Differences
There are several key legal and tax differences between an asset sale and share sale that should be considered before deciding on a particular method of sale. For example, an asset sale may allow the seller to retain certain liabilities associated with the business, whereas a share sale will transfer all liabilities to the buyer. Additionally, an asset sale may be less complex from a legal perspective since it does not involve transferring ownership of a company.
From a tax perspective, an asset sale may allow the seller to take advantage of certain reliefs and exemptions that are not available in a share sale. For example, Capital Gains Tax relief may be available on an asset sale but not on a share sale. As always, it is advisable to seek professional advice in order to determine which method of sale is best suited for your particular situation.
Due diligence is an important step in the sale of a business. By investigating the commercial, legal, accounting and tax aspects of the business, the buyer can get a better understanding of the value of the business. This information can then be used to negotiate a better price with the seller. However, due diligence can also have a negative impact on the sale price of a business. If the buyer finds any problems with the business, they may try to re-negotiate the price. Therefore, it is important to be honest and transparent during the due diligence process to avoid any problems down the road.
Cash payments in stages
Once the sale agreement is signed, the date is fixed for completion, when you will receive the money for the business. You might be keeping a financial interest in the business as the money is being paid in stages or in earnings related pay-outs which are dependent on the performance of the business after completion. You will want to think carefully about these since you will no longer have direct control of the business following completion.
If you are being paid in stages, you need to be clear about what conditions need to be met for each payment to be made – for example, whether certain milestones need to be reached or targets achieved. You should also consider how long each stage should last and whether interest will be charged on any deferred payments.
With an earn-out arrangement, you will continue to have some involvement with the business after completion, so it is important to agree upfront how much time you are willing to commit and what tasks you will be expected to perform. It is also worth considering how performance will be measured and whether there is potential for disagreements down the line. Overall, you need to make sure that you are comfortable with any post-completion arrangements before signing on the dotted line.
When selling a business in the UK, there are two main methods that can be used: an asset sale or share sale. Both methods have their own advantages and disadvantages from a legal and tax perspective. It is important to seek professional advice in order to determine which method of sale is best for your particular situation.