When a business sale is agreed in principle, many owners assume the hard part is over. In reality, some of the most consequential decisions are made in the weeks that follow, and few are more important than how the transaction is structured.
The choice between a share sale and an asset sale affects how much you receive, what liabilities you retain, how quickly the deal can complete and, in some cases, whether it completes at all. It is a commercial decision that impacts the entire transaction so getting it right is key.
Share sale vs asset sale – what’s the difference?
In a share sale, the buyer acquires the company itself – its shares, its history, its contracts, its liabilities and its assets. The business continues to exist; ownership simply changes hands. For the seller, this is usually the cleaner outcome. Depending on the circumstances, a share sale may offer more favourable tax treatment for individual shareholders, including the potential availability of Business Asset Disposal Relief. The company’s contracts, licences and relationships generally transfer automatically, without the need to obtain third-party consent.
In an asset sale, the buyer selects specific assets from the business such as stock, equipment, goodwill, intellectual property or customer lists, and leaves the rest behind, including liabilities the seller may have hoped to pass on. The company itself is not sold; it remains with the seller, often as a shell to be wound down. Proceeds are received by the company rather than the shareholders directly, which creates a further layer of extraction and potential tax before the money reaches the individuals involved.
In regulated sectors, businesses with licences, permissions or key customer contracts may find a share sale significantly more practical than re-papering arrangements through an asset transaction.
Why buyers and sellers often want different things
Buyers, particularly those acquiring smaller businesses, often prefer asset sales. The attraction is straightforward: they can cherry-pick what they want and leave behind what they do not, including historical liabilities, disputes, pension obligations or tax exposures sitting inside the company. They start with a clean structure, avoiding the risk that comes with acquiring a company’s full corporate history.
Sellers, for the most part, prefer share sales – for tax reasons, but also because an asset sale can be operationally complicated. Contracts need to be novated, employees must technically transfer under TUPE, licences and regulatory approvals may need to be reapplied for, which may add time, cost and risk to the process. Of course, what makes a share sale attractive to a seller is often precisely what makes a buyer nervous: they are acquiring the whole company, any skeletons in the closet included.
Understanding the buyer’s position early allows sellers to anticipate the negotiation rather than react to it.
In practice, share sales are more common in the SME market, largely because most sellers are incorporated businesses where the tax advantages are significant and the operational complexity of an asset sale outweighs the buyer’s preference for a clean start. Asset sales tend to arise where a business is distressed, where a buyer is acquiring only part of a business, or where the company’s history carries liabilities serious enough that no buyer is willing to acquire the company outright.
Where liabilities sit – and who carries them
In a share sale, historical liabilities remain inside the company and transfer to the buyer. Buyers address this risk through warranties, indemnities and, increasingly, warranty and indemnity insurance. The seller’s exposure post-completion depends significantly on how the warranty negotiation is conducted and how thoroughly the disclosure exercise is carried out.
In an asset sale, the seller retains the company and, with it, any liabilities that were not transferred. Employment liabilities for staff who do not transfer, legacy tax issues, pending disputes – these remain the seller’s problem. This can be advantageous where the seller is confident the company is clean, but it requires careful thought about what is and is not included in the sale.
External investment and partial exits
Founders seeking investment rather than an outright sale face a different but related set of structural questions. A minority investment, a management buyout or a partial exit each involves different considerations around valuation, share class rights, governance and drag-along or tag-along provisions.
Investors, whether private equity, family office or strategic, will have their own structural preferences. Some will require a clean holding structure above the trading entity before they will invest. Others will want to understand how founders intend to exit eventually, and will want protections built in from the outset. Deal structure often sits alongside wider pricing mechanics such as earn-outs, deferred consideration or retained equity, all of which can significantly affect value, control and risk allocation between the parties. The structure agreed at investment stage can significantly affect the seller’s position – and tax treatment – at the point of eventual exit.
How to structure a business sale before going to market
One of the most common mistakes we see is owners committing to a structure, formally or informally, before taking proper advice. Heads of terms are sometimes agreed with a structure already embedded in them, leaving limited room to revisit the question once advisers are engaged.
Pre-sale restructuring – separating property from trading assets, simplifying group structures, tidying share registers – can take several months and may have tax implications of its own if left too late. The earlier these decisions are considered, the more options remain available.
A decision worth making carefully
There is rarely a universally correct answer on deal structure. The right choice depends on the composition of the business, the tax position of the sellers, the identity of the buyer and what both parties are trying to achieve. What matters is that it is treated as a substantive decision, taken with proper advice, and not left to default.
If you are considering selling your business, taking investment or restructuring ahead of an exit, early advice on deal structure can materially improve outcomes. Our Corporate team would be pleased to discuss your options.
