We are frequently approached by clients looking to buy a business. Those not familiar with such transactions may not understand the difference between an asset purchase and a share purchase.
An asset purchase involves the buyer acquiring the assets which make up the business from the owner of the business which may be an individual, a partnership or a company. The business is purchased as a going concern together with all its assets, including goodwill (business name, customers).
A share purchase is where the buyer acquires the shares in the company that owns the business. The contract is between the buyer and the owner(s) of the shares in the company that own the business. The transaction involves the shares in the company being transferred; there is no change in the ownership of the business which remains in the ownership of the company.
Whether to structure the transaction as an asset or share purchase can depend on various factors such as tax (for example the ability to claim entrepreneur’s relief on capital gains) and the consent of third parties to the transfer of assets (for example business premises held on lease or intellectual property rights held on licence) and professional advice is essential.