Asset Purchase vs. Share Purchase

Attribute	Asset Purchase	Share Purchase
Ownership	Buyer purchases specific assets of the company	Buyer purchases ownership stake in the company
Liabilities	Buyer typically does not assume company liabilities	Buyer may assume company liabilities
Tax implications	May result in higher tax consequences for the seller	May result in lower tax consequences for the seller
Control	Buyer gains control over specific assets	Buyer gains control over the entire company
Due diligence	Requires detailed examination of assets being purchased	Requires detailed examination of company's financials and operations

Introduction

When it comes to acquiring a business, there are two main ways to do so: through an asset purchase or a share purchase. Each method has its own set of advantages and disadvantages, and it is important for both buyers and sellers to understand the differences between the two. In this article, we will compare the attributes of asset purchase and share purchase to help you make an informed decision.

Asset Purchase

In an asset purchase, the buyer purchases specific assets and liabilities of the business, rather than acquiring the shares of the company. This means that the buyer can pick and choose which assets and liabilities they want to acquire, and which ones they want to leave behind. Asset purchases are often used when the buyer wants to avoid taking on certain liabilities of the seller, such as outstanding debts or legal issues.

• Buyer has more control over which assets and liabilities to acquire
• Can avoid taking on certain liabilities of the seller
• Can depreciate the assets for tax purposes
• May require more due diligence to identify all assets and liabilities
• May result in higher transaction costs due to transferring individual assets

Share Purchase

In a share purchase, the buyer purchases the shares of the company, which means they acquire all of the assets, liabilities, contracts, and legal obligations of the business. Share purchases are often used when the buyer wants to acquire the entire business as a going concern, without having to transfer individual assets and contracts. Share purchases can be more straightforward in terms of transferring ownership, but they also come with certain risks and obligations.

• Acquire the entire business as a going concern
• Transfer ownership of the business in a single transaction
• Assume all assets, liabilities, contracts, and legal obligations of the business
• May be subject to more regulatory approvals and consents
• May result in potential hidden liabilities that the buyer may not be aware of

Tax Implications

One of the key differences between asset purchase and share purchase is the tax implications for both the buyer and the seller. In an asset purchase, the buyer can depreciate the assets acquired for tax purposes, which can result in tax savings over time. On the other hand, in a share purchase, the seller may be eligible for certain tax reliefs, such as capital gains tax exemptions, depending on the jurisdiction and the structure of the transaction.

Liability Considerations

Another important factor to consider when deciding between asset purchase and share purchase is the liability implications for both parties. In an asset purchase, the buyer can avoid taking on certain liabilities of the seller, as they are only acquiring specific assets and liabilities. This can provide a level of protection for the buyer against potential unknown liabilities of the seller. On the other hand, in a share purchase, the buyer assumes all liabilities of the business, which can be risky if there are hidden liabilities that the buyer is not aware of.

Due Diligence

Due diligence is a crucial step in both asset purchase and share purchase transactions, but the scope and complexity of due diligence may vary depending on the method of acquisition. In an asset purchase, the buyer will need to conduct thorough due diligence to identify all assets and liabilities that they want to acquire, as well as any potential risks or issues associated with the assets. On the other hand, in a share purchase, the buyer will need to conduct due diligence on the entire business, including its financials, contracts, and legal obligations, to assess the overall risk profile of the business.

Conclusion

In conclusion, asset purchase and share purchase are two common methods of acquiring a business, each with its own set of advantages and disadvantages. Asset purchase allows the buyer to have more control over which assets and liabilities to acquire, while share purchase provides a more straightforward way to acquire the entire business. It is important for both buyers and sellers to carefully consider the tax implications, liability considerations, and due diligence requirements of each method before making a decision. Ultimately, the choice between asset purchase and share purchase will depend on the specific circumstances of the transaction and the goals of the parties involved.