Corporate Lawyers in London Discuss the Difference of Share and Asset Purchases in Acquiring a Company

One of the most common practices of corporate lawyers in London is acquiring a business. In private acquisitions, the buyer is a limited entity. All of the company is bought via the issued and to be issued share capital.

By buying the share capital of the company, all the assets of the target company are acquired. With absence of change in control provisions for the documents, whether contracts of licences on the business, there will be no more need for consultations with other parties.

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How Companies in England and Wales are Acquired

Companies in England and Wales are purchased through their shares or assets. In a share purchase, the buyer gets ownership of the target company as a whole; including its assets, liabilities and obligations. In an asset purchase, the buyer purchases particular assets and rights of a business owned by the selling company.

  • Main Advantage for Share Purchase
    A share acquisition, however, will also result in liabilities of the target being acquired too. It is important that proper due diligence is done, and every warranty is obtained.On the other hand, for asset sales, most assets and liabilities will not likely transfer, so assignments of contracts and novation of liabilities are needed. In addition if an asset or liability is not listed in connection with the sale, the buyer will not acquire the title to the asset, or the seller will be left with the liability.
  • Main Advantage for Asset Purchase
    In an asset purchase, only the listed assets and liabilities are acquired, apart from those acquired through operation of law relating to employees. However, these acquisitions may need third party consent, in relevance to the terms.

Factors to Consider in the Sale

Usually the same firms that you can count on making a will in Bristol also manage mergers and acquisitions for companies. Below is a discussion of key business elements, and the circumstances that will happen to them either in an asset sale or share sale.

  • Employees

When purchase a company, the Transfer of Undertakings (Protection of Employees) Regulations 2006 (TUPE) is applied. Under TUPE, the seller’s employees are transferred to the buyer following the current employment terms.  This includes the liabilities linked to the employees.

This condition makes it less appealing to go through an asset sale. In a share purchase, the TUPE is not applicable because the employer’s identity is the same.

  • Transfer of Liabilities

In a share purchase, all liabilities together with the assets remain with the business acquired. However, in an asset purchase, the buyer can select the liabilities and assets it will assume. Remaining assets stay with the seller.  This is an advantage for the buyer if the seller’s business has many liabilities, both known and unknown.

  • After-Sale Profits

If the seller of assets is a company, the shareholders may find it hard to get profits, since the company has to pay a dividend to each of them. Also, the selling company gets taxed on the consideration paid by the buyer. Shareholders who want to profit from the sale will then get dividends that are subject to income tax charge, putting a second tax on the profit.

Meanwhile, if the company is sold via share purchase, the funds will be paid directly to the seller’s shareholders. This means there’s no need for double taxation on the profits.

Know Which Sale Type to Engage In

By getting to know the conditions with the acquisition of a company either through assets or shares, you will know which type of sale works in your favour. With the many details you will encounter during company mergers and acquisition, consulting a law firm who specialises in conveyancing in Bristol for such activities is a must. That firm should guide you on the proper purchase of a business, and its integration into your business.

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