Asset Purchase Vs Share Purchase: Which is best for you.

• Posted onApril 30, 2024

For any buyer, the way the purchase of a business is structured is of paramount importance and should be agreed at the earliest stage possible.  Peter Mardon Head of Company Commercial at WSP Solicitors, provides insights into crucial tax considerations you should be aware of before purchasing any business whether its an asset purchase or share purchase.

Usually there are two main options available: an asset purchase (you buy the assets of the target company from that company, so it is the company that is the seller) or a share purchase (you buy the shares of the company from the shareholders, so the shareholders are the sellers).

What is an Asset Purchase

No stamp duty is payable on the purchase of assets, but stamp duty land tax may be payable on properties (the exact amount is dependent on the value of those properties, but the top rate is up to 5%, buying (say) an office or factory building for £500,000 as part of an asset sale would give rise to an SDLT charge of £14,500).

The buyer will not “inherit” any tax liabilities of the company, and this has the added advantage of simplifying the acquisition.

One downside may be that any tax losses within the company which may have been available to set off against future profits will be lost and so not available to the buyer.

What is a Share Purchase

Stamp duty at just 0.5% is payable on the price paid for the shares so buying shares for £500,000 would give rise to a stamp duty charge of just £2,500.

All tax liabilities of the target company remain with that company so in effect the buyer “inherits” them.  This also complicates the acquisition as the buyer will want to carry out due diligence in respect of taxation issues and to have the protection of warranties and indemnities in case those liabilities are greater than expected.

Of course, what is best for the buyer may not be best for the seller as explain in the article Asset Purchase Vs Share Purchase: Which is best for you.

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