Selling the shares and selling the assets can produce very different legal, tax and practical outcomes for your client.

When a limited company is sold, one question needs to be settled early: is the transaction a share sale or an asset sale?

The distinction sounds straightforward. In practice, it affects who receives the sale proceeds, what the buyer acquires, which liabilities move with the business and how much work may be required to complete the transfer.

For accountants advising owner-managed businesses, understanding that distinction can help you identify the right questions before a transaction gets too far down the road.

1. Start by identifying who is actually selling

A share sale and an asset sale involve different sellers.

In a share sale, the shareholders sell their shares to the buyer. The limited company itself remains intact, but its ownership changes.

Aly Young used a useful analogy during her recent webinar: think of the company as a glass jar containing sweets. The jar is the company and the sweets are everything inside it.

Sell the shares and the entire jar changes hands.

That means the company's assets, contracts and history remain within the same legal entity. But so do its liabilities and any problems that have not yet surfaced.

An asset sale works differently. The limited company is the seller and transfers selected assets to the buyer. The shareholders still control the selling company, but they are not personally selling those assets.

That difference becomes particularly important when considering tax and how the sale proceeds eventually reach the shareholders.

2. A share sale transfers the good and the bad

From the buyer's perspective, continuity can be an important feature of a share purchase.

The company remains the same legal entity. Its underlying business does not have to be reconstructed asset by asset simply because its shareholders have changed.

But the buyer also acquires the company's history.

That makes due diligence particularly important. A buyer needs to understand what is sitting inside the company before taking ownership.

Tax issues, contractual liabilities or other historic problems do not disappear because the shares have changed hands.

This is also where warranties, disclosures and indemnities become important.

A warranty is broadly a promise made about the company being sold. Where a seller cannot give a warranty without qualification, the disclosure process allows relevant matters to be brought to the buyer's attention.

For the selling shareholder, these contractual protections need careful attention. Completion of the sale does not necessarily end their exposure if warranties or indemnities continue afterwards.

3. An asset sale lets the buyer choose, but creates transfer work

An asset purchase gives the buyer greater scope to select what it actually wants.

That might include customer relationships, goodwill, intellectual property, stock, plant and machinery. Other assets, such as premises or unwanted stock, might remain with the seller.

This ability to cherry-pick can be attractive. However, each asset needs to be considered individually.

Take customer contracts. The buyer cannot necessarily assume those contracts can simply move across. Existing terms may need to permit assignment, otherwise customer consent could be required.

Similar questions arise elsewhere.

A leased property may require landlord consent. Financed plant and machinery may require agreement from the finance provider or repayment of outstanding finance. Domain names and intellectual property require the necessary ownership and registration details to complete the transfer.

Customer data also brings data protection considerations.

So an asset sale can narrow what the buyer acquires, but that does not automatically make the transaction simpler.

4. Tax can change the economics of the decision

Tax was a recurring theme throughout the webinar because the sale structure affects where the money goes first.

With a share sale, the buyer pays the selling shareholders for their shares. The shareholders therefore receive the proceeds personally and the relevant tax treatment is considered at shareholder level.

With an asset sale, the buyer pays the limited company for its assets. The company may face tax on gains arising from the disposal.

The shareholders then face another question: how will they extract the sale proceeds from the company?

Depending on the circumstances, extracting those funds can create an additional tax consequence. Aly described this as the potential double-taxation problem that needs to be considered when comparing the two structures.

This is why the headline purchase price alone does not tell your client what a deal is worth to them.

The calculations need to consider the structure and what the shareholder ultimately receives.

5. Do not overlook employees in an asset sale

Buying selected assets does not necessarily allow a purchaser to leave the workforce behind.

Where the transaction amounts to a relevant business transfer, TUPE may apply and employees can transfer with the business.

That makes employment considerations another part of the transaction structure rather than an issue to address after the commercial terms have been agreed.

[CHECK: legal review of current TUPE requirements before publication.]

6. Working capital needs an early conversation

A further issue raised during the webinar was working capital.

A buyer may expect the acquired business to have sufficient working capital to continue operating immediately after completion. This can affect how much cash the seller actually receives on completion.

Aly described transactions where an agreed business value is considered alongside debt, cash and an agreed level of working capital.

An estimate may be prepared shortly before completion. The figures can then be checked afterwards through post-completion adjustments or a similar mechanism defined in the sale agreement.

For a seller expecting a particular headline figure, this distinction matters.

Finding out late that some value needs to remain within the business can create unnecessary disagreement. Accountants can help clients understand the working-capital position much earlier.

The accountant can help clients ask the right questions

Business-sale decisions sit across accounting, tax, legal and financial planning.

The accountant can therefore play an important role before the transaction documents are drafted.

Start with some basic questions. Who is selling? What exactly does the buyer want? Which assets or liabilities would transfer? Where will the sale proceeds land? How will the shareholder eventually receive the money?

Then do the maths on the different structures before allowing assumptions about the deal to harden.

A share sale can preserve continuity but carries the company's history with it. An asset sale offers greater choice over what transfers, but individual assets may require additional work and consent.

Neither structure should be treated as simply a different route to the same destination.

For your client, the practical and financial outcomes can be materially different.

Frequently Asked Questions

What is the difference between a share sale and an asset sale?

In a share sale, the shareholders sell their shares in the limited company to the buyer. The company continues as the same legal entity, with its assets, contracts, liabilities and history remaining inside it.

In an asset sale, the company sells selected business assets to the buyer. These might include goodwill, intellectual property, stock, plant and machinery or other agreed assets. The shareholders continue to own the selling company unless separate steps are taken afterwards.

Who receives the money when a company is sold?

It depends on the transaction structure. In a share sale, the buyer purchases shares from the shareholders, so the sale proceeds are paid to those shareholders.

In an asset sale, the limited company sells the assets and receives the proceeds. The shareholders must then consider how money will be extracted from the company. That distinction can have important tax consequences and should be considered when comparing the two structures.

Does a buyer take on the company's liabilities in a share sale?

A share purchase involves buying the company itself, including its history. Existing liabilities therefore remain within the company after ownership changes.

This is one reason buyers normally carry out due diligence before completing a share purchase. Warranties, disclosures and indemnities may also be used to allocate risks between buyer and seller. Their precise effect depends on the transaction documents and circumstances.

Can a buyer choose which assets to acquire in an asset sale?

Yes. An asset sale can allow the buyer and seller to agree which assets form part of the transaction. For example, a buyer might acquire goodwill, customer relationships, intellectual property, stock or machinery while leaving other assets behind.

However, individual assets may require separate transfer arrangements. Contracts, leased property, financed equipment, intellectual property and customer data can each raise different legal and practical requirements.

Do customer contracts automatically transfer in an asset sale?

Not necessarily. The ability to transfer a customer contract depends on its terms and the circumstances of the transaction. Some contracts may permit assignment, while others could require customer consent.

This should be reviewed early in an asset sale, particularly where important customer relationships contribute significantly to the value of the business. The webinar recommends examining contracts individually rather than assuming they will automatically transfer to the buyer.

What happens to employees in an asset sale?

Employees cannot necessarily be excluded simply because the buyer is purchasing assets rather than shares. Where the transaction constitutes a relevant business transfer, TUPE may apply and employees may transfer with the business.

The precise employment-law position depends on the circumstances of the transaction.

Is a share sale more tax-efficient than an asset sale?

The webinar does not support a universal answer. The tax outcome depends on the seller's circumstances and the structure of the transaction.

With a share sale, proceeds are paid directly to the selling shareholders. With an asset sale, proceeds initially belong to the company, which may face tax on gains from disposing of assets. Further tax consequences can arise when shareholders extract those proceeds. Current rates and available reliefs should therefore be checked for the specific transaction.

Why is working capital important when selling a business?

A buyer may expect the business to have enough working capital to continue operating following completion. The agreed working-capital position can therefore affect the amount the seller ultimately receives.

The webinar describes transactions where business value is considered alongside debt, cash and an agreed working-capital level. Estimated figures may be used around completion and subsequently checked through an agreed post-completion adjustment mechanism.

What due diligence is required for a share sale?

A buyer will typically investigate the company because purchasing its shares means acquiring the existing legal entity and its history. The webinar highlights the importance of identifying liabilities and other issues that may already sit within the company.

The process can also connect with warranties, disclosures and indemnities in the transaction documents. The exact scope of due diligence will depend on the company and proposed deal.

What should accountants discuss with clients before a business sale?

Accountants can help clients establish the proposed structure before assumptions about the deal become fixed. Useful questions include: Who is actually selling? What does the buyer want to acquire? Which assets and liabilities will transfer? Where will the proceeds be paid? How will shareholders ultimately receive their money?

The webinar also highlights tax, working capital and the practical transfer of business assets as areas worth considering early.

Should the share-versus-assets decision be made before agreeing the sale price?

The structure should be considered early because the same headline business valuation does not necessarily produce the same outcome for the seller.

A share sale and an asset sale differ in who receives the initial proceeds, what transfers to the buyer and what tax or working-capital considerations may follow. Modelling those differences can help the client understand the practical value of the proposed transaction before terms become fixed.

The contents of this article are meant as a guide only and are not a substitute for professional advice. The author/s accept no responsibility for any action taken, or refrained from, as a result of the material contained in this document. Specific advice should be obtained before acting or refraining from acting, in connection with the matters dealt with in this article. The information at the time of publishing was accurate and could be subject to final changes.