Andrea Smith (pictured above), partner and head of business services at Franklins Solicitors, assesses the different types of sales structures to consider when selling a business
SELLING a business can be daunting. Being prepared can help you maximise your sale value and reduce stress by ensuring that you are fully appraised and confident in the decisions you make. Every transaction is unique. However, there are two key ‘sale structures’ commonly adopted: Share Sales and Business Sales. Here we explain the pros and cons of each method.
This is where you personally sell the shares that you own in your company to your buyer. The business itself remains ‘intact’ and therefore no property transfers, TUPE transfers or contract assignments are required which can help preserve the continuity of business and cause less disruption to the day to day running of the business.
A ‘Business Sale’ or ‘Asset Sale’ is where an individual or a company sells the components or specific assets which together make up a business. Whilst this can be a lower risk from a buyer perspective, it can cause more disruption to the business as you have to transfer each asset and obligation to the buyer for them to continue the business and may involve TUPE transfers, property transfers and contract assignments.
Which is Best?
There are pros and cons to both structuring the deal as a Share Transaction or a Business/Asset Transaction.
Structuring the deal as a Share Transaction may:
- Be more tax-efficient for a seller;
- Involve a higher level of due diligence and disclosures;
- Involve a substantial number of documents to affect the share transfer and change of ownership itself;
- Increase the risk to a buyer as they inherit both liabilities and assets;
- Cause less disruption to the operation of business itself.
Structuring the deal as a Business Transaction may:
- Enable the buyer to ‘cherry pick’ assets and ‘leave behind’ certain liabilities;
- Involve more documentation to physically transfer the assets to the buyer;
- Cause more disruption to the business, especially if there are employees who need to be consulted on the pending transfer of the business;
- Involve more costs for the buyer, especially if property needs to be transferred which could incur Stamp Duty Land Tax;
- Reduce the direct liabilities of the individuals involved in the deal if they operate through a selling company.
Ultimately, every transaction will be different, and it is about balancing the risks and benefits of the parties in each deal to agree a structure which both are happy to proceed on.