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Buying a business

Asset sale or share sale? What changes when you fund the business you are buying

Asset sale vs share sale: buy the company, or buy its parts. What each one changes about tax, staff, old debts and what a lender will lend against.

Reading time 6 min read
Category Business guides
Written by The bizbritain team
In a share sale you buy the company itself, with everything it owns and everything it owes. In an asset sale you buy the parts you want and leave the company with the seller. The choice between an asset sale and a share sale changes what you pay tax on, who keeps the old debts, what happens to staff, and what a lender will lend against. This guide explains the difference in plain words, and what to settle before you talk to a lender.

Section 01

What is the difference between an asset sale and a share sale?

A limited company is a legal person in its own right. It owns the equipment, holds the contracts, employs the staff and owes the debts.
In a share sale, you buy the shares from the owner. The company carries on as before, with everything it owns and everything it owes. Only the owner changes.
In an asset sale, the company sells you some or all of what it owns. That can be the equipment, the stock, the customer list, the trading name and the lease. The company itself stays with the seller, along with anything you did not buy.
Does this apply if the business is a sole trader?
No. A sole trader has no shares to sell, so the deal is always an asset sale. The choice only comes up when the business is a limited company.
Four things change depending on which one you choose.

  1. The past

    In a share sale, the company's history comes with it. That includes unpaid tax, old disputes and contracts signed years ago. In an asset sale, those usually stay with the seller's company. You take the parts, not the record.

  2. Tax on the purchase

    When you buy shares, you usually pay Stamp Duty of 0.5% on the price. In an asset sale, the tax depends on what you buy. A freehold in England or Northern Ireland brings Stamp Duty Land Tax: nothing on the first £150,000, 2% on the next £100,000, and 5% above £250,000. Equipment may qualify for capital allowances. Ask an accountant to price both versions.

  3. Staff

    In an asset sale, the business moves to a new employer, so the TUPE rules usually apply. Jobs, terms and continuity of employment transfer with it. In a share sale, the employer does not change. The staff stay employed by the same company.

  4. Contracts, licences and the lease

    In a share sale, these stay with the company, although some contracts let the other side walk away if the owner changes. In an asset sale, each contract, licence and the lease has to be moved to you. The landlord, the supplier or the licensing body may have a say.

Section 02

What is a share purchase agreement?

A share purchase agreement is the contract for a share sale. It sets the price, what is included, and how any later adjustments work.
Most of its length is warranties. These are promises by the seller about the company: that the accounts are accurate, the tax is paid and the contracts are as described. If a warranty turns out to be wrong, you may have a claim against the seller.
An asset sale uses an asset purchase agreement instead. It lists exactly what transfers to you and what does not.
Get a solicitor to draft either one. The warranties are where a buyer's protection sits, and they are not a place to save money.

Section 03

Which structure does a lender prefer?

A lender asks one question first. What am I lending against?
An asset sale gives a clear answer. Equipment, vehicles and property can be valued and used as security. Asset finance or a commercial mortgage can fund those items, and a term loan can cover the rest.
A share sale is different. The security is the company itself and the profit it makes. Lenders look at the trading history, the accounts and the cash the business generates. In our experience, most lenders can fund the purchase of a profitable, established company. They will want a fuller picture of its past first.
Does the seller's choice decide it?
Not on its own. Sellers often prefer a share sale, usually for tax reasons. Buyers often prefer an asset sale, because they leave the old debts behind. The price tends to move to reflect who takes the risk. Ask an accountant what the difference is worth in your deal, then negotiate.
If the seller is retiring, part of the price can be paid later. Our guide to how an earn-out works explains that option. For the wider picture, see how acquisition finance works.

Section 04

What to settle before you talk to a lender

Know which structure you are buying, and why the seller wants it that way.
List what transfers. On an asset sale that means every item, contract, licence and member of staff. On a share sale it means everything the company owns and owes, so ask about anything it owes.
Ask for the last three years of accounts either way. A lender will.
Get both versions priced, including the tax. The cheaper headline price is not always the cheaper deal.
Then test the structure with lenders before you agree it with the seller. A broker who arranges business acquisition finance can put the same deal to a range of lenders and tell you which version they will fund, and on what terms. That is what bizbritain does for first-time buyers every week.

This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.

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