When it comes to selling a business which is operated through a company, the first question the owner of that business has to ask is whether or not the sale is going to be of the shares in the company that runs the business or the assets of the business. More often than not, the decision will be heavily motivated by tax considerations and the seller should always seek specialist tax advice from an accountant to discuss how best to proceed from a tax perspective.
Commercial Solicitor, Karen Edwards, explains that there are also a number of legal issues which should be considered prior to reaching a decision. She says “The buyer of a company (i.e. the shares) buys the company “warts and all” and therefore assumes all of the liabilities of the company. The company could carry significant and unknown liabilities, for example, uninsured risks on past contracts, product liability risks for defective or dangerous products, or uninsured claims in negligence, and the risk attached to this could deter a buyer from buying the shares.”
“By comparison, simply buying assets means that a buyer can leave the liabilities with the company and very often for smaller transactions, an asset rather than a share deal may be necessary simply in terms of avoiding the professional costs of carrying out lengthy due diligence. On the other hand, buying the assets does not mean that a buyer is free from any risk at all; both buyer and seller should be careful to ensure that they comply with their duties under the Transfer of Undertakings (Protection of Employment) Regulations 2006 in respect of any transferring employees.”
In addition, selling assets must often be made on the basis of obtaining any third party consents from, for example, the landlord of leasehold premises and / or the suppliers or customers with whom the business has trading agreements, something which would not necessarily be required in a share purchase.
If you are considering buying or selling a business, contact Karen or a member of the Commercial Team at Frettens on 01202 499255. We are pleased to offer a free initial appointment to discuss the issues with you.