Asset purchase vs share purchase: which should you choose as a buyer?

In an asset purchase, you buy specific things the company owns: its equipment, stock, goodwill, customer list, lease and trading name. The company itself, and everything attached to it that you have not explicitly agreed to buy, stays with the seller. In a share purchase, you buy the company itself, as a complete legal entity, including everything inside it: its assets, its contracts, and its history, good and bad.

This is not a minor legal technicality. It changes what risk you are carrying, how the deal is taxed on both sides, whether existing contracts survive the sale automatically, and how employees are affected. Get the wrong structure for your situation and you either inherit a liability you never priced in, or you pay more tax than the deal needed to cost.

Most UK sellers have a strong preference for a share sale, and the reason is tax. Business Asset Disposal Relief cuts Capital Gains Tax to 18% on up to £1m of qualifying gains when you sell shares in a trading company, against the much higher rate that applies to a company selling its own assets and then extracting the proceeds. For an owner who has built the business over years, that difference is often worth tens of thousands of pounds.

Most buyers have the opposite instinct, and the reason is risk. Buy the shares and you buy the company's full history: every contract it has signed, every tax position it has taken, every dispute it has ever been part of, whether or not it was disclosed. Buy the assets instead and the company, with all of that baggage, stays behind with the seller. You choose exactly what comes with you.

Neither side is wrong. The eventual structure is a negotiation, and it is common for price to move to reflect whichever side gives ground. A seller accepting an asset sale, for example, sometimes expects a higher headline price to offset the tax they lose by not qualifying for relief.

This is the single biggest practical difference. In a share purchase, any liability the company has, whether you knew about it or not, is now yours: historic tax exposure, a pending claim, an environmental issue from years before you were involved, a mis-sold warranty on work the business did last year. Warranties and indemnities in the sale agreement exist specifically to let you claim back against the seller if something undisclosed surfaces, but pursuing a warranty claim after completion is slower, more adversarial and less certain than simply never having inherited the risk.

In an asset purchase, liabilities generally stay with the selling company unless you specifically agree to take one on, such as an equipment lease you want to continue. This is why asset purchases are more common for distressed or higher-risk acquisitions, and why buyers with less appetite for the unknown tend to push for this structure whenever the seller will accept it.

A share sale changes who owns the company, not the company itself, so its contracts, leases, supplier terms and banking arrangements continue exactly as they were. Nothing needs re-signing because the legal entity on the paperwork has not changed.

An asset sale is messier here. Contracts generally do not transfer automatically; each one needs to be formally assigned or novated to you, which usually requires the other party's consent. A landlord can refuse to assign a lease. A key customer can decline to sign a new contract with the new ownership. A supplier can use the change as a reason to renegotiate terms. For a business where continuity of a handful of major contracts is the entire reason you are buying it, this is worth checking before you commit to an asset structure, not after.

In a share sale, staff are already employed by the company you are buying, so nothing changes for them on paper. Employment continues exactly as it was, with the same contracts and the same continuous service.

An asset sale usually triggers TUPE, the Transfer of Undertakings (Protection of Employment) regulations. Staff working in the part of the business being transferred move across to you automatically, on their existing terms, with continuity of employment preserved. You cannot simply choose not to take them on, and you cannot use the transfer itself as a reason to change their terms or make them redundant. This surprises some first-time buyers who assume an asset deal means a clean slate on staffing. It does not.

• Licences and permits: some are tied to the company and transfer automatically in a share sale; in an asset sale they may need reapplying for, which can take weeks and sometimes requires the business to stop trading briefly
• Lenders: a bank financing your purchase may have its own preference, since a share purchase lets them take security over an established trading entity with a track record, while an asset purchase sometimes means lending against a newly formed vehicle
• Stamp duty: share purchases attract Stamp Duty at 0.5% of the consideration; asset purchases do not attract stamp duty in the same way, though Stamp Duty Land Tax can apply if property is included
• Capital allowances: buying assets lets you claim capital allowances on their value going forward, which is not available in the same way when you acquire them indirectly through a share purchase

Start from the liabilities, not the tax. If due diligence turns up a business with a clean history, few material contracts that are hard to assign, and straightforward employment arrangements, the risk gap between the two structures narrows and price, tax and lender preference become the deciding factors. If due diligence turns up anything uncertain, whether that is a contingent liability, an unresolved dispute or simply a seller who is reluctant to answer direct questions, an asset purchase gives you a cleaner way to proceed without inheriting a problem you never fully priced.

Raise structure early, ideally before heads of terms, not as a late surprise during legal drafting. A seller who has priced the deal assuming a share sale and Business Asset Disposal Relief will often need to revisit the price if you move to an asset structure late in the process, which costs both sides time and goodwill that due diligence will need later.