When it’s time to sell your business, you will need to decide whether you want to sell your business assets or your whole company. Both options have distinct advantages and disadvantages, and understanding the differences between these options is vital for making a choice that aligns with your exit strategy.
Asset Sale:
An asset sale involves selling specific assets and liabilities of your business while leaving your company’s structure intact. The buyer acquires the individual business assets such as equipment, inventory, customer lists, contracts, and intellectual property.
Advantages:
Tax Benefits – An asset sale can offer potential tax advantages, including capital gains tax concessions, resulting in a lower tax burden for Sellers.
Flexibility – Asset sales allow sellers to cherry-pick the assets they wish to sell, making it easier to retain the assets you want to keep (for example, the company car).
Disadvantages:
Lengthy Process – An asset sale can be more time-consuming and complex than a share sale, as each asset may require separate negotiation and documentation.
Stakeholder Concerns – Customers, employees and suppliers may be wary of an asset sale, as it might disrupt existing business relationships and contracts.
Share Sale:
In a share sale, the buyer purchases the shares of your company, effectively acquiring ownership of the entire business entity along with all its assets, liabilities, and legal obligations.
Advantages:
Simplified Process – Compared to an asset sale, a share sale is often more straightforward since it involves a single transaction, and no assets are changing owners (so less paperwork!).
Continuity – A share sale allows the business to continue operating without any disruptions, as the new owner steps into the shoes of the previous shareholders.
Disadvantages:
Liability Transfer – Share sales also transfer all existing liabilities and potential legal issues to the buyer. Potential buyers may not be willing to accept this risk.
Valuation Complexities – Determining the value of shares might be more intricate than calculating the worth of individual assets, and you might incur more accounting costs undertaking this valuation process.
Choosing between an asset sale and a share sale largely depends on your specific goals and circumstances. If you are considering selling your business, our expert business lawyers can help you determine the best approach. You can book in a free 20-minute consult with us here.
