One of the first and most important decisions when buying a business is whether to structure the deal as an asset purchase or a share purchase. The choice affects risk, tax, complexity and future flexibility.
There is no one-size-fits-all answer. Every business has its own history, contractual framework, workforce arrangements and regulatory profile. The right structure depends on what is being acquired, the risks involved, and the buyer’s long-term objectives.
What is a share purchase?
In a share purchase, the buyer acquires the shares in the company that owns and operates the business. The company itself continues to exist as the same legal entity, along with all of its assets, contracts, employees and liabilities.
In practical terms, ownership of the company changes, but the company’s legal identity does not.
Advantages
- Contracts, licences and permits often continue without interruption
- Customer and supplier relationships may remain more stable
- Employees remain employed by the same company
- There is typically less need to transfer individual assets
From an operational perspective, a share purchase can offer continuity. Third parties may not need to consent to the change in ownership, depending on the terms of the contracts in place.
Disadvantages
- The buyer inherits all historic liabilities, both known and unknown
- Tax exposures and contingent claims transfer with the company
- There is limited ability to exclude unwanted assets or obligations
Because the legal entity remains intact, any past issues – whether contractual disputes, compliance failings or tax irregularities – stay within the company. Because of this, thorough legal and financial due diligence is essential.
Share purchases are often used when key contracts are difficult to transfer, regulatory approvals are attached to the company itself, or the business has a clean trading history and a well-managed risk profile.
What is a share purchase agreement?
A share purchase agreement (SPA) is the main legal contract used when buying shares in a company. It sets out exactly what is being sold, the price and payment terms, warranties given by the seller, indemnities for specific risks and any conditions that must be satisfied before completion.
In the UK, a share purchase agreement is a detailed and heavily negotiated document. Because the buyer inherits the company with all of its assets and liabilities, the SPA plays a critical role in allocating risk between the parties.
What is an asset purchase?
An asset purchase involves the buyer acquiring specific assets and, where agreed, certain liabilities of the business too. The seller retains the company itself and any excluded liabilities.
The buyer can select exactly what they wish to acquire, such as goodwill, stock, equipment, intellectual property, property interests and contracts.
Advantages
- Greater control over what is included in the deal
- Ability to exclude historic or unwanted liabilities
- Increased flexibility in structuring the acquisition
This structure can be attractive where the buyer wants to ring-fence risk or acquire only part of a wider group or trading operation.
Disadvantages
- Contracts may require third-party consent to transfer
- Employees may transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)
- More documentation is usually required
Asset purchases often involve detailed schedules listing each asset being transferred. Assignments of contracts, novations, property transfers and intellectual property assignments may all be required. This can increase complexity and timescales.
Key considerations in any business acquisition
Regardless of sector, certain factors frequently influence the choice of structure. This includes the business’s trading history, financial position and the extent of regulatory exposure. For example, if a business operates in a heavily regulated environment, it may be difficult or impractical to transfer licences.
Equally important to consider is the nature and value of intellectual property, property ownership or lease arrangements, the stability of key contracts and the current workforce arrangements and pension obligations.
If there are concerns about historic liabilities or unresolved disputes, an asset purchase may offer greater protection.
Tax treatment can also differ between structures for both buyers and sellers, so it is essential to seek early legal and tax advice before heads of terms are agreed. Our business purchase solicitors regularly deal with both asset and share purchases and can advise from the outset on the best way forward.
Asset purchase vs share purchase – which structure is right?
The optimal structure depends on the specific facts of the transaction, the parties’ commercial objectives, and the balance between risk and convenience.
Taking legal advice at an early stage allows buyers to assess risk properly, negotiate appropriate warranties and indemnities, and structure the transaction to protect value while keeping the deal commercially workable.
A well-chosen structure does more than complete a transaction – it lays the foundation for the future success and stability of the business.
Get in touch
If you are acquiring a business, or are considering whether to structure the deal as an asset purchase or a share purchase – please do reach out to our corporate and commercial solicitors. We regularly guide SME businesses through both sales and purchases.
