Marshall Q&A – Topic 5: Asset Sale v Share Sale – What’s the Difference?

Question: What is the best way to sell parts or all of my business?

Short Answer: As unhelpful as it sounds – ‘it depends’

Key Takeaways

  • Asset Sales transfer the item/property/business without transferring past responsibilities.
  • Share Sales maintain the business but transfer control.
  • Choosing what works for you depends entirely upon your unique situation.

When selling integral aspects of a business, a question we are frequently asked is whether an Asset Sale or Share Sale is more appropriate.

Both sale structures have their pros and cons, so the major difficulty is identifying the needs of your business. In short, Asset Sales are great for isolating particular ‘things’ (even if that amounts to the whole business) and offloading them to an outside party. Share Sales on the other hand are best used to transfer control or ownership of a portion of the business (including all of its assets and liabilities).

Asset Sale

First thing’s first – if your business is not incorporated, then an Asset Sale is your only option.

Asset Sales allow you to completely sell your ownership of something, meaning you will no longer have any rights or responsibilities towards it. However, unless specifically included, an Asset Sale will not transfer liabilities or obligations which have already arisen.

A business’s assets can include tangible assets (such as equipment, stock, or land), and intangible assets (such as goodwill, trademarks, or brand recognition). A value can be ascribed to both categories of assets, and as such an Asset Sale can facilitate a clear transaction.

If there are some assets that you wish to sell, but some that you wish to retain, then an Asset Sale is the obvious choice. It allows you to clearly identify what is the subject of the sale and itemise a price accordingly.

By requiring clear identification of exactly what is being transferred, Asset Sales are less appropriate for transferring larger businesses with diverse interests and property. Conducting an Asset Sale in that scenario could result in particular assets, interests, or liabilities being overlooked. In those situations, your best option might be to consider a Share Sale.

Share Sale

Share Sales transfer a party’s interest in the business. Rather than isolating and transferring particular assets, Share Sales allow you to sell a portion of your ownership.

This is useful for, say, bringing in a new business partner, or transferring control whilst retaining a portion of business profits. The business will continue to operate as normal, allowing for a smooth transition.

Share Sales transfer portions of ownership in the business as a whole, including any liabilities. For this reason, it allows sellers to pass on any obligations they hold. The flip-side is that buyers should conduct detailed due diligence to identify the true value of the business and what liabilities they are inheriting.

So what does it all mean?

There are many more things to consider than what we have discussed. The type of sale you use can effectively change the nature of the transaction and have substantial tax implications.

Advanced things to consider are what specifically is the subject of the transaction, whether your transaction should involve holding companies, and what tax obligations or concessions will apply.  Additionally, waiting times for approval from regulatory agencies could be a significant factor, particularly where time is of the essence.

Each of these things will vary depending on who the parties are and the nature of the transaction. There is no quick answer to which structure best suits your needs, but Marshall Lawyers can help you identify the best way forward.