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Asset purchase or share purchase

When buying a business there are two different approaches which can be taken as to how the business is purchased: asset purchase or share purchase.

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Asset purchase or share purchase

 

Asset purchases

The first way is to purchase the assets of the business which allow the buyer the freedom to pick and choose which assets to buy together with the advantage of being able to apportion the purchase price between the assets.  For the buyer, stamp duty land tax will be payable on the purchase of any property at varying percentages of the purchase price ranging from 1% to 5%.  This is known as an asset purchase.

Shares purchases

The second approach is to purchase the company by way of a share purchase and so is only relevant if buying the business of a company.  Here the buyer buys the shares in the company. This allows the seller to take advantage of a favourable tax regime and provides the seller with a clean break.  For the buyer it provides for a continuation of the business as contracts between the company and its customers and suppliers remain in place.  The buyer can also rely on an extensive array of warranties and indemnities provided by the seller.   In a share purchase, all of the company’s assets and liabilities are sold, which includes all tax liabilities.  For the buyer, stamp duty is payable on the purchase price of the shares which, at the time of writing, is at 0.5%.

TUPE normally applies to asset purchases where it does not normally apply to share purchases.

Whichever route is used, as business solicitors we can assist on advising the most appropriate type of transaction for a seller or buyer.   In either circumstance, we would always advise our client to seek specific tax advice.

At Ironmonger Curtis LLP our corporate solicitors have years of experience dealing with business sales and acquisitions. Please email info@ironmongercurtis.com or call 08452252635 for more information.

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