Share sale vs asset sale: what changes for buyer and seller

Every sale of a limited company business is one of two things. Either the shareholders sell their shares and the company changes hands with everything in it, or the company sells its business and assets and the shareholders keep the company. The headline price can be the same in both. Almost nothing else is.

Settle which one you are doing before you go to market. It changes the tax, the risk, the paperwork, the timetable and the pool of buyers who will be interested, and a seller who expects a share sale and receives only asset sale offers has learnt something about how the market sees the business.

If you trade as a sole trader or a partnership, there are no shares to sell and every sale is in substance an asset sale. Most of what follows about asset sales applies to you.

What actually transfers

| | Share sale | Asset sale | | --- | --- | --- | | What the buyer acquires | The shares, and so the whole company | Chosen assets and the trade | | The legal entity | Stays the same, with a new owner | Stays with the seller | | Contracts | Stay in place, unless a change of control clause says otherwise | Have to be assigned or novated one by one | | Employees | Stay employed by the same company | Transfer to the buyer under TUPE | | Historic liabilities | Stay in the company, so the buyer takes them on | Stay with the seller unless the buyer agrees to take them | | Cash and debt | Adjusted for in the price, usually cash free and debt free | Usually left with the seller | | Who receives the money | The shareholders | The company |

The rest of this article follows the rows of that table, because each one moves money in one direction or the other.

Liabilities: the heart of the argument

In a share sale the company does not change. Everything it has ever done stays inside it: an underpaid tax return from three years ago, a product sold with a defect, a dismissal handled badly, a contract breached. The buyer now owns the company that owes all of that.

A buyer's protection is therefore contractual rather than structural. Due diligence to find the problems, warranties in the share purchase agreement that give a claim if the seller's statements prove untrue, specific indemnities for known risks such as tax, and sometimes a retention of part of the price to meet claims. Our due diligence checklist sets out what a buyer will examine and why.

In an asset sale, the buyer takes only what the agreement lists. The liabilities generally stay with the company the seller keeps, which is why buyers prefer it and why a business with an untidy history often only sells this way. The seller still gives warranties about the assets, but the exposure is narrower.

The flip side for the seller is that after an asset sale they own a company containing the sale proceeds and whatever liabilities it had. It has to be wound up or kept, and either costs something.

Employees and TUPE

TUPE, the Transfer of Undertakings (Protection of Employment) Regulations, applies where a business or part of one moves to a different employer. The government guidance is explicit that the identity of the employer must change.

In a share sale it generally does not apply, because the employer is the same company before and after. Contracts continue exactly as they were. Nobody's employment transfers anywhere.

In an asset sale it does apply. Employees assigned to the business transfer to the buyer automatically, their terms and conditions transfer with them, and their continuity of employment is preserved. The outgoing employer must give the buyer employee liability information at least four weeks before the transfer, and both employers have a duty to inform and consult affected staff or their representatives.

A buyer cannot use an asset sale to pick the staff it wants on new terms. That point surprises some buyers, and it is worth being clear about in early conversations, because TUPE also carries the transferring employees' history with them.

Contracts, leases and consents

In a share sale the company's contracts stay where they are, because the contracting party has not changed. The exception is a change of control clause, which lets the other side terminate or renegotiate if the company's ownership changes. Supplier agreements, franchise agreements, finance facilities and some customer contracts carry them, and they need finding early.

In an asset sale every contract the buyer wants has to be moved across. Some can be assigned, which transfers the benefit. Many need the counterparty's agreement, and anything carrying obligations generally needs a novation, which is a new contract in all but name. With fifty customer contracts, that is fifty conversations.

Leases follow the same pattern. On an asset sale the lease has to be assigned, which almost always needs the landlord's consent, often with conditions such as a guarantee from the outgoing tenant. On a share sale the tenant is still the same company, but many commercial leases treat a change of control as needing consent too. Either way, the landlord is often the slowest party in the deal, and asking early is cheaper than asking late.

Licences held by the company, such as premises licences, regulated permissions or accreditations, usually stay with it on a share sale. On an asset sale they may need transferring or applying for afresh, which can set the timetable.

VAT: transfer of a going concern

A share sale is not a supply of goods or services by the company, so VAT does not arise on the price.

An asset sale is, on the face of it, a sale of assets by a VAT registered business, and VAT at the standard rate would be chargeable. The exception is a transfer of a going concern, known as a TOGC. If the conditions are met, the transfer is treated as neither a supply of goods nor services and no VAT is charged.

HMRC's guidance in VAT Notice 700/9 sets out the main conditions:

• The assets are sold as a business as a going concern, meaning a business that is operating, not a collection of assets.
• The buyer intends to use them to carry on the same kind of business as the seller.
• Where the seller is VAT registered, the buyer is registered, required to register, or accepted for voluntary registration.
• There is no significant break in the normal trading pattern before or immediately after the transfer.
• Where the sale includes property the seller has opted to tax, the buyer must also opt to tax and notify HMRC by the relevant date, and confirm to the seller that the option will not be disapplied.

Getting it wrong is expensive in either direction. Charging VAT when TOGC applies means the tax was not due and has to be unpicked. Not charging it when TOGC does not apply leaves the seller owing VAT out of a price that did not include it. The sale agreement normally deals with this, and it is worth an accountant's time.

Stamp taxes

On a share sale, the buyer pays Stamp Duty at 0.5 per cent of the price where shares are transferred by stock transfer form and the transaction is over £1,000. On a £2m share purchase that is £10,000, and it is the buyer's cost.

On an asset sale there is no stamp duty on goodwill, equipment or stock. But if the assets include land or buildings, the buyer pays land tax on that part of the price. In England and Northern Ireland that is Stamp Duty Land Tax. For a non-residential freehold, the rates are 0 per cent on the first £150,000, 2 per cent on the next £100,000 and 5 per cent on the portion above £250,000. Scotland charges Land and Buildings Transaction Tax and Wales charges Land Transaction Tax instead, each with its own rates.

For a business that owns its premises, the difference between 0.5 per cent on the shares and up to 5 per cent on the property is one of the few points where the buyer's tax position favours a share sale.

Tax for the seller

This is the point that usually decides a seller's preference. In brief:

• A share sale is taxed once, on you, as a capital gain. Business Asset Disposal Relief can reduce the rate on qualifying gains to 18 per cent for disposals on or after 6 April 2026, up to a lifetime limit of £1m.
• An asset sale is taxed twice. The company pays Corporation Tax on its gain, at a main rate of 25 per cent, and you then pay tax again to extract the proceeds as dividends or on a winding up.

Our guide to the tax on selling a business works through the rates, the conditions for the relief and how deferred consideration is taxed.

Tax for the buyer

The buyer's tax position runs the other way, which is part of why the two sides disagree.

In an asset sale, the buyer's cost for each asset is what it paid for it, allocated across the assets in the agreement. That allocation affects capital allowances on plant and equipment and the tax treatment of goodwill, and it is negotiated.

In a share sale, the buyer acquires shares at their cost, but the company underneath keeps its existing tax history, including the values at which it already holds its assets. The buyer inherits whatever position the company is in, good or bad, including any losses and any exposure.

Who prefers which, and why

| Consideration | Seller's usual preference | Buyer's usual preference | | --- | --- | --- | | Tax on the sale proceeds | Share sale, taxed once | Not their tax | | Historic liabilities | Share sale, gone with the company | Asset sale, left behind | | Speed and paperwork | Share sale, fewer consents | Share sale, fewer consents | | Employees | Neutral in practice | Neutral, TUPE applies anyway | | Stamp taxes | Not their tax | Share sale if there is property | | Choosing what to take | Not relevant | Asset sale |

In practice, most sales of a profitable limited company with clean records are share sales, because the seller's tax saving is large and a buyer can manage the liability risk through diligence and warranties. Asset sales are common where the business is small, where the records or history are untidy, where only part of the business is being sold, or where the seller is a sole trader.

How the structure moves the price

Because each side gains from a different structure, the choice becomes part of the price negotiation.

A buyer asked to accept a share sale is taking on risk it would otherwise avoid, and will want either a lower price, stronger warranties, a larger indemnity, or a retention. A seller asked to accept an asset sale is taking on a larger tax bill, and should compare offers on net proceeds after tax, not on the headline figure. An asset sale offer can look higher and leave you with less.

Two practical points follow. First, if you want a share sale, make it easy to say yes to: clean accounts, a tidy statutory register, contracts you can find, and known problems disclosed early, which is what our guide to what a buyer will ask for is built around. Second, settle the structure in the heads of terms, not later, because moving from one to the other after due diligence has started restarts a good part of the work.

Before you decide

• Ask your accountant for the net proceeds of each route at your expected price.
• List every contract, lease and licence with a change of control or assignment clause.
• Find out whether the business owns property, and how the buyer's land tax changes the arithmetic.
• Confirm your VAT position if an asset sale is on the table.

Then use the valuation calculator for a price range and the step by step guide to selling for where this decision fits in the timetable.