Key differences between selling a company's shares and selling its business and assets

There are two main ways to sell your business – your company’s shareholders can sell their shares, or the company can sell its business and assets. This table summarises the important differences between the two, so that you can understand which might be the best way for you to sell your business.
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Different ways of selling a business
How to sell a business
Q1:How can I sell my business?

There are two principal ways in which you can sell your business:

  1. you can sell your , which owns your business, through a sale by your 's of their (see Q&A 2 and following for what is involved in a sale); or

  2. your as owner can sell your business and assets (see Q&A 12 and following for what is involved here).

This is because your is a legal person distinct from the business it runs. There is a separation between:

  1. the ownership of your , which is in the hands of your 's ; and

  2. the ownership of your business and assets and responsibility for your business's liabilities, which is primarily in the hands of your .


Selling a company's shares
Q2:What is a share sale?

A sale means just that - the sale by the current of their in your .

Your is owned collectively by your 's . Your in turn is a separate legal person which owns your business and assets.

If your 's sell all of their to someone else, ownership of your 's business, assets and liabilities will automatically pass to the buyer as new owner of your 's .


Q3:How do I sell my company's shares?

Strictly speaking, all you need to sell your 's is for your to sign stock transfer forms and deliver them to the buyer with their (or an for any lost ). All underlying assets and liabilities will automatically pass with the to the buyer.

However, in practice almost all potential buyers will not agree to buy your 's without going through both:

  1. comprehensive due diligence on your business; and

  2. negotiation of detailed sale documents with the sellers to provide contractual protection.


Q4:What are the benefits of a share sale for my company's owners?

The possible benefits to your 's in selling their include:

  1. receiving the sale price from the buyer, which will hopefully provide them with a profitable return on their investment (see Q&A 27);

  2. tax reliefs which may be available on the sale price, such as and or (see Q&A 9); and

  3. a 'clean break' in that after the sale they will cease to have an interest in the business (although they may have ongoing liabilities under the sale documents) (see Q&A 30).


Q5:What issues might my company's owners have to deal with on a share sale?

A sale can be both time-consuming and expensive for your 's owners and there is no that negotiations with a potential buyer will result in a sale. If a buyer pulls out before a sale goes ahead, there is usually nothing you can do.

See Q&A 7 for information on how long it will take and Q&A 8 and Q&A 9 for guidance on the cost.

You will need consents before a sale can happen; see Q&A 10 for guidance.


Q6:What issues might a buyer have with a share sale?

The main issue which will be faced by someone who is looking into buying a 's , and the principal reason for the time and cost which both sellers and buyer will incur on a sale, is the risks a buyer will assume if it becomes the owner.

As new owner of your 's , a buyer will automatically take over responsibility for your 's business, assets and liabilities. Generally speaking, the buyer will take over your business risks without recourse to your selling unless it has contractual protection.

This explains the two principal parts of the process of selling once the price has been agreed:

  1. the a possible buyer will carry out before committing themselves to buy, to make sure they know as much as they want to know on your 's liabilities, risks and opportunities (and if they do not like what they see, giving them the opportunity to pull out of the sale); and

  2. the legal process of negotiating the sale documents with your 's owners so that the buyer will have contractual protection to guard against unexpected liabilities (and again, if the buyer does not get the protection they want, giving them the opportunity to pull out of the sale before signing anything).

One of the main reasons why a sale may take the form of your selling its business and assets, and not a sale of , is if the buyer is not prepared to take on some or all of your 's liabilities; see Q&A 15 for more guidance on this.


Q7:How long will it take to sell my company's shares?

You can expect the process involved in selling your 's to be time-consuming in terms of the steps you should take to prepare for a sale, the buyer's on your business and the legal process of agreeing the sale documents.

It could be anything up to a year (sometimes longer) from when you first start discussions with a buyer until the sale completes. See Preparing a business for sale for more guidance.

As with any other sale process, such as selling your house, there is no that negotiations with a potential buyer will result in a sale.


Q8:How much will it cost to sell my company's shares?

The two main costs to pay on a sale are:

  1. tax; and

  2. advisers' fees.

Your 's owners will generally be liable to pay on any gain they make on a sale of their . See Q&A 9 for more guidance on this.

A sale process could be expensive in terms of advisers' fees as you will need to instruct lawyers and tax advisers and maybe others too. These costs can be factored into the sale price you negotiate but you will probably need to pay your advisers whether or not the sale goes ahead. (See Preparing a business for sale for guidance on instructing advisers.) For access to a specialist lawyer in a few simple steps, you can use our Ask a Lawyer service.


Q9:How much tax will my company's owners have to pay if they sell their shares?

If you or other sell in your for a price which is more than you paid, there is a good chance you will need to pay () on your gain.

You may be able to reduce or delay the amount of you need to pay on a sale of your if you are eligible for tax relief – for example, if any selling qualifies for , or if the sold qualify for or relief (see Preparing a business to raise money for guidance on and ).

Tax is outside the scope of this service. You should get advice from a suitably qualified tax expert at an early stage of preparing for a sale of your 's .


Q10: What consents will I need to sell my company's shares?

You will need to obtain consents before a sale can happen, including from:

  1. your board before you start the sale process, in advance of signing the sale agreements and to approve the to the buyer;

  2. each , which may be an issue if not all are in agreement;

  3. one or more if required under your 's of association or, if there is one in place, ;

  4. parties to commercial agreements entered into by your such as a supply agreement or property lease if, for example, the other parties have a right to terminate on a change of ownership (a 'change of control' provision); and

  5. your bank if required (which is likely) under the terms of your banking arrangements.

See Preparing a business for sale for more detailed information on the consents you will need.


Q11: What happens to employees if my company's shares are sold?

If your 's are sold, your will remain employed by the and so their employment will not be affected. The employment which applies on a business and assets sale (see Q&A 21) does not usually apply on a sale.


Selling a company's business and assets
Q12:What is a business and assets sale?

A sale of your business and assets typically involves your (not your 's ) selling to a buyer:

  1. the of your business, so that the buyer and not your has the right to run the business; and

  2. specific assets which are identified in the sale agreement,

with the buyer agreeing to take on liabilities which are also identified in the sale agreement.

The buyer will pay the purchase price to your and not to your 's , as it is the which owns the business and assets and not your .


Q13: How do I sell my company's business and assets?

A sale of your business and assets is achieved by your (not your 's ) and the buyer signing a sale agreement, which will determine precisely what is sold and how.

In order to sell your 's business and assets, you will need to agree with the buyer and define carefully in the sale documents:

  1. exactly which assets and liabilities the buyer will take over as part of the sale, and which assets and liabilities will be excluded from the sale;

  2. what formalities will be needed to sell particular assets such as a lease or ;

  3. what consents will be required from suppliers or customers (such as your bank or important customers) as a condition to the sale going ahead, and how to plan for these; and

  4. what process to follow in order to deal with those who will transfer across with the business.


Q14: What are the benefits of a business and assets sale for my company's owners?

A business and assets sale is not generally speaking advantageous for your 's owners ().

If your runs more than one business and you are only selling one business to the buyer, or if the buyer refuses to buy in any other way, you may have no choice.

However, your will not benefit from any tax reliefs which may be available to them on a sale and they are likely to pay tax if your makes any payment to them out of the sale proceeds (in addition to any tax your will have to pay) (see Q&A 28 for more detail). They will also have to deal with legal formalities not required for a sale (see Q&A 13 and Q&A 15).


Q15: What issues might my company's owners have to deal with on a business and assets sale?

A business and assets sale, like a sale, can be both time-consuming and expensive and there is no that negotiations with a potential buyer will result in a sale. If a buyer does pull out before a sale goes ahead, there is usually nothing you can do.

See Q&A 17 for information on the time it will take and Q&A 18 and Q&A 19 for guidance on the cost.

Both a sale and business and assets sale will invariably involve the negotiation and signing of lengthy sale documents. However, the strict formalities required for a business and assets sale are more complex due to the legal position that:

  1. no assets will be sold unless defined clearly in the sale agreement and unless, where applicable, specific formalities are observed to be able to transfer certain categories of asset such as real estate and ;

  2. as between your and the buyer, the buyer will only be responsible for those liabilities of the which are spelt out in the sale agreement;

  3. even if the buyer has agreed with your to be responsible for a liability owed to a , as between your and the your will remain on the hook unless the agrees otherwise;

  4. consents will be needed from parties to your business contracts (what are known as novations) for your to be fully relieved from its contractual commitments and for the buyer to know that key contracts have been transferred to it intact; and

  5. in the business will automatically transfer to the buyer with the business and these must be informed and consulted before the sale (see Q&A 21).


Q16: What issues might a buyer have with a sale of business and assets?

If your 's business and assets are to be sold, and not , it will probably be due to the buyer's insistence.

Most of the issues which a buyer will have to face will be due to the nature of what is being acquired from your . See Q&A 15 for the formalities involved in selling a business and assets.

Examples of issues which a buyer may typically have to deal with are if:

  1. the buyer wants to be sure that a key supplier or customer will be fully on but either the supplier or customer is not prepared to commit itself, or for reasons of confidentiality you do not wish to make any approach before the sale; or

  2. there are issues obtaining consent for a key contract such as from your landlord under the office lease.


Q17: How long will it take to sell my company's business and assets?

You can expect the process involved in selling your 's business and assets to be time-consuming in terms of:

  1. the steps you should take to prepare for a sale (see Preparing a business for sale);

  2. the formalities required (see Q&A 15);

  3. the buyer's on your business; and

  4. the legal process of agreeing the sale documents.

It could be anything up to a year (sometimes longer) from when you first start discussions with a buyer until the sale completes.

As with any sale process, for example selling your house, there is no that negotiations with a potential buyer will result in a sale.


Q18:How much will it cost to sell my company's business and assets?

The two main costs to pay on a business and assets sale are tax and advisers' fees.

Your will be liable to pay on any gain it makes on a sale of its business and assets. See Q&A 19 for more guidance on this.

A sale process could be expensive in terms of advisers' fees as you will need to instruct lawyers and tax advisers and maybe also other advisers. These costs can be factored into the sale price you negotiate but you will need to pay them whether or not the sale goes ahead. (See Preparing a business for sale for guidance on instructing advisers.) For access to a specialist lawyer in a few simple steps, you can use our Ask a Lawyer service.


Q19:How much tax will my company's owners have to pay if my company sells its business and assets?

Your 's should not have to pay tax solely as a result of your selling your business and assets, if they do not benefit personally. However, your may be liable to pay on any gain it makes on the sale and your 's owners may be liable to pay tax if any payments are made to them out of the sale proceeds.

There is therefore a risk of the purchase price being taxed twice, once in the hands of your and a second time when payments are made to your . This is not the case when are sold (see Q&A 28).

Tax is outside the scope of this service. You should get advice from a suitably qualified tax expert at an early stage of preparing for a sale of your business and assets.


Q20:What consents will I need to sell my company's business and assets?

You will need to obtain the following consents to be able to sell your business and assets, and transfer responsibility for your business liabilities:

  1. from your board, to start the sale process and to approve the sale documents;

  2. from one or more , if required under your 's or, if there is one in place, ;

  3. from parties to your business contracts (what are known as novations) for your to be fully relieved from its contractual commitments and for the buyer to know that key contracts have been transferred to it intact; and

  4. in order to discharge your from its business liabilities, from those to whom the liabilities are owed.

You will also need to inform and consult with before any sale (see Q&A 21).


Q21:What happens to my employees if my company's business and assets are sold?

If your sells its business and assets as a , :

  1. requires that and their representatives are informed of and consulted about the sale before it happens, and provides for sanctions if not complied with;

  2. provides that are automatically transferred from the to the buyer at the same time as the sale happens; and

  3. treats who are sacked in connection with the sale as (with exceptions).


The key differences between a share sale and a sale of business and assets
Q22:What are the key differences between a share sale and a sale of business and assets?

The key differences, which are summarised in Key differences between selling a company's shares and selling its business and assets are as follows:

  1. there are more strict legal formalities involved and consents required in selling your business and assets and transferring liabilities than in selling your 's (see Q&A 23);

  2. the buyer will take on all the risks of your business if it buys your 's (subject to contractual protections in the sale agreement) but only those risks and liabilities it agrees to be responsible for if it buys the business and assets (see Q&A 24);

  3. there is a more advantageous tax treatment for your 's owners on a sale, although there may be tax benefits for a buyer if it buys your business and assets (see Q&A 28);

  4. your 's owners are able to have a clean break from the business if they sell their but will not do so if your sells its business and assets (see Q&A 30);

  5. a buyer by comparison will take on all the business risks if it purchases your 's (see Q&A 6) but will be able to cherry pick assets and liabilities if it purchases your business and assets (see Q&A 13); and

  6. a process of informing and consulting with will be legally required before your business and assets can be sold, but not your 's (see Q&A 21 and Q&A 11).


Q23:What are the differences between a share sale and a sale of business and assets in relation to consents and formalities?

In practice, whether you sell your 's or its business and assets, there is likely to be detailed and lengthy legal documents to negotiate and agree before the sale can complete.

The main difference between the two sale processes is that more consents will be needed for a business and assets sale (see Q&A 20) than for a sale (see Q&A 10).

In addition, formalities must be observed to be able to transfer certain types of asset such as real estate and , whereas the only technical formality needed to sell your 's is for the to sign and deliver forms to the buyer with their (or an if lost).


Q24:What are the differences between a share sale and a sale of business and assets in relation to the risks assumed by the buyer?

In buying your 's , the buyer will automatically take on all the risks of the business. In comparison, if it buys your 's business and assets it will only take on those risks for which it agrees to take responsibility under the sale documents. It is typically for this reason that a buyer will choose to buy the business and assets.

This does not mean that your 's will be off the hook after selling their . A buyer will look to protect itself by requiring and from the under the sale agreement.


Q25:What are the differences between a share sale and a sale of business and assets in relation to contracts?

On a sale of business and assets, your business contracts will only transfer to the buyer with the consents of the other parties. These consents will be needed before your can legally transfer the contracts to the buyer and cease to have any liability under them. Without consents, they will not transfer and your will remain liable.

On a sale of your 's , your business contracts will continue. However, some contracts may contain a right of the other party to terminate if there is a sale of your 's (also known as a 'change of control provision'). These will be reviewed by the buyer as part of its and typically the buyer will require the other parties' consents so it can be sure the contracts will continue.


Q26: What are the differences between a share sale and a sale of business and assets in relation to liabilities?

Your business liabilities will generally speaking be owed by your and following a sale of your 's , unless the terms provide otherwise, will continue in place and become the buyer's responsibility as new owner of the .

On a sale of your 's business and assets, however, your will only be able legally to transfer responsibility for its liabilities with the consent of the persons to whom they are owed. Until then your can still be sued even if the buyer has agreed with your to deal with the liabilities.


Q27:What are the differences between a share sale and a sale of business and assets in relation to payment of the purchase price?

On a sale of your 's , the purchase price will be paid to your 's as the sellers.

In comparison, on a sale of business and assets the seller is your and it, not your 's , will receive the purchase price. Your will have to make a separate payment to your for them to be paid personally.

See Q&A 28 for the impact this has on tax which is payable on the sale proceeds.


Q28:What are the differences between a share sale and a sale of business and assets in relation to tax?
  1. Tax for a and its owners

    Probably the most important advantage for your 's owners of selling instead of your business and assets is that the purchase price will be paid to them, not your . They will normally be subject to () if they sell for a profit and they may be able to reduce or delay the amount of if eligible for tax relief - for example, if they qualify for , or if the sold qualify for or relief (see Preparing a business to raise money for guidance on and ).

    By comparison, if your sells its business and assets, the purchase price will be paid to your not . Your is likely to pay tax on the sale proceeds, especially if sold for a profit, and then the are likely to be taxed if this money is paid to them by your .

    Tax is outside the scope of this service. You should get advice from a suitably qualified tax expert at an early stage of preparing for a sale of your business.

  2. Tax for a buyer

    There may be tax benefits for a buyer in purchasing a business and assets rather than (such as obtaining capital allowances for the cost of plant and machinery). However, the stamp duty which a buyer will pay on could be significantly lower than on some assets such as real estate.

Tax is outside the scope of this service. You should get advice from a suitably qualified tax expert at an early stage of preparing for a sale of your business.


Q29:What difference does it make to my company's employees if my company's shares are sold or its business and assets?

If your sells its business and assets as a , employment (known as ) requires that:

  1. and their representatives are informed of and consulted about the sale before it happens;

  2. the are automatically transferred from the to the buyer at the same time as the sale happens; and

  3. have the right not to be in connection with the sale.

When a 's are sold, does not usually apply as the will remain the and so will continue to be responsible for its .

The complications in relation to can of themselves be an important in structuring the sale of your business as a sale instead of a sale of business and assets. See Transferring employees to another business for more guidance on .


Q30:What difference does it make to the owners' continuing involvement with my business if my company's shares are sold or its business and assets?
  1. Sale of – clean break for a 's owners, buyer takes the risk

    As a result of selling their and assuming they do not continue as , or in any other capacity, your 's owners will generally speaking cease to be involved with or have any responsibility for your business.

    This is because the assets and liabilities of the business are with your not the and will automatically pass to the buyer through its ownership of the .

    As between the and the buyer, the may however have potential liabilities under the sale agreements.

  2. Sale of business and assets – owners still on risk, ability of a buyer to cherry-pick

    By comparison, on a business and assets sale, even if a buyer agrees to take over some or all of your 's liabilities, your could still be sued on these by the persons to whom the liabilities are owed. This is because of the legal rule that liabilities do not transfer without the consent of the person to whom they are owed.

    The advantages for a buyer, however, are its ability to choose which assets to buy and which liabilities it is prepared to take on. These will be matters of negotiation with your 's owners and will be reflected in the sale agreement.


Buy-outs
Q31:What is a buy-out?

A is a form of sale. It is not covered in any detail in this section but is a way in which you can sell a part of your business.

It can take a number of different forms but commonly involves the sale of some of your 's existing , with the buyer often backed by a professional investor such as a or fund.

A offers some of your 's owners an opportunity to sell their and allows others, who may for example be part of management and who do not want to sell, to continue as . At the same time, managers who are not currently may be able to invest in going forwards, particularly if the sale is backed by a professional investor.

The way professional investors structure is likely to add to the duration and cost of the sale process.

See Choosing and approaching new share investors, and in particular the guidance on investors and funds, for a typical process involving a professional investor.


IPO
Q32:What is an IPO?

Another way to sell your 's business is through an initial public offering, or , of your 's . It is not covered in any detail in this section.

In brief, the an can be done by admitting your 's to or listing them on the of the London Stock Exchange (). is the 's international market for smaller growing and so is more likely to be relevant to you if an is the sale route you wish to pursue.

You need to be aware of some of the requirements which are specific to an . They include:

  1. your and will need to satisfy numerous conditions before the can go ahead;

  2. a broker or (in the case of ) a will need to be appointed along with legal, accounting and other advisers;

  3. your will need to convert from a to a and will be subject to additional legal requirements;

  4. your will need to approve or sign up to various public documents; and

  5. your 's will not be able to sell their for a period after the (referred to as lock-ins).