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If you are planning to sell your business and are a sole trader or a partnership then of course your choice is narrowed to one – an asset sale. However, if you run your business through a limited company or, increasingly, a limited liability partnership, then your first sale decision is the choice about whether to sell the assets of the company or your shares in the company.
There are advantages and disadvantages to both options:-

Asset Sale Agreement

Advantages   

  • An asset purchase generally involves your buyer in fewer risks and therefore the contract and transaction are more straightforward and less involved.   
  • The seller is your company and so, unless there is an express arrangement to the contrary, any warranties or guarantees you give are given by your company, not you personally.   

Disadvantages

  • The buyer is a completely separate legal entity so you will have to ensure that all the different parts of the business are legally transferred including any properties, employees or contracts. This makes it harder to keep the deal quiet!
  • The company will still be yours at the end of the transaction and you will need to deal with this properly (e.g. by closing the company down) which could involve you in further work such as chasing unpaid debts owed.

Share Sale Agreement

Advantages   

  • The buyer will step into your shoes as shareholder/director but the employees, contracts, properties etc will remain in the company’s ownership. There is therefore no need for the assets of the company to be transferred and this means a share sale can often be completed without any third party involvement making it far more discreet.    
  • The company will no longer be yours at the end of the transaction and so your buyer will inherit any problems (such as outstanding debts) that exist at the date of sale.   

Disadvantages

  • A share purchase generally involves your buyer in far greater risk than an asset purchase and therefore the contract and transaction are more involved and more warranties (including warranties relating to the payment of tax) will be requested.
  • You, not your company, are the seller and so any warranties or guarantees you give are given by you personally.
For more information please contact David Heys at Lawson-West Commercial on 0116 212 1000.