Asset Purchase or Share Purchase: Which Are You Buying?

There are two main ways to buy a business in the UK. You can buy the business's assets (its goodwill, equipment, stock, and the right to trade from its premises), or you can buy the shares of the limited company that owns the business. The choice affects what you take on, what can go wrong later, and how tax applies. Most small business sales are asset purchases, but it is worth understanding both.

Asset purchase

You buy the parts of the business you want and leave the rest with the seller. The seller (or their company) keeps its own debts and history. You usually set up your own company or trade as a sole trader to take the business on.

• Liabilities mostly stay with the seller, which is why buyers of small businesses usually prefer this route.
• Contracts, the lease and licences have to be transferred individually, which can need consent from landlords, suppliers or licensing authorities.
• Staff usually transfer to you automatically on their existing terms under the TUPE regulations, where the business is transferred as a going concern.
• VAT: the sale of a business as a going concern can be outside the scope of VAT if certain conditions are met; your accountant should confirm this before completion.

Share purchase

You buy the company itself. Nothing changes from the business's point of view: the company keeps its contracts, staff, lease and licences, and it keeps its history too.

• Liabilities: the company's past debts, tax and claims stay with it, so they become your problem. This is why due diligence is deeper and the sale agreement includes warranties and indemnities from the seller.
• Continuity: contracts and the lease often continue without needing consent, although some include change-of-control clauses.
• Stamp duty is generally payable on the purchase of shares, at a percentage of the price.

Which is right for you?

For most owner-run businesses, an asset purchase is simpler and safer for the buyer. A share purchase can make sense where contracts, licences or accreditations would be hard to transfer, for larger businesses with an established company structure, or where the seller will only sell on that basis. The listing or the agent will usually tell you which the seller expects.

The decision has tax consequences for both sides, so take advice from an accountant and a solicitor before you agree heads of terms.