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Sale and purchase of businesses and shares

2015-11-06

Having spent a number of weeks now exploring and looking after the potential sale of one of our larger limited companies I thought I would explain some of the issues involved with this.

If you are a sole trader or partnership you can only sell assets in the business. If you operate through a limited company, the company can sell the assets, or the shareholders can sell their shares. Here are a few things to note between share and asset purchases:

Share Purchase

  • The company is sold inclusive of all its assets and liabilities, known and unknown. The purchaser will expect the seller to give extensive warranties and indemnities as protection against unknown liabilities.
  • Extensive due dilligence will need to be carried out by the purchaser which will incur significant professional fees.
  • As this route will only mean a change of ownership the trading position, relationship with customers and suppliers should not change. Contracts for staff etc would not need to be transferred.
  • The transfer of ownership will be dealt with by way of simple stock transfer forms.
  • Stamp Duty is paid on the value paid for the shares.
  • The seller should be entitled to Entrepreneurs Relief, which effectively reduces the capital gains tax rate to 10%, providing certain conditions are met.

Asset Purchase

  • The purchaser decides on the assets it wants ie Goodwill, Stock etc and invariably leaves behind the liabilities with the seller.
  • Limited due diligence, warranties and indeminities will be required.
  • The trading position may be affected as this will now be dealt with through a new entity. All contracts will have to be assigned to the purchaser. 
  • Until July 2015 there were allowances avaliable to the purchaser on the assets acquired ie Goodwill but George Osborne has now put a stop to this. For the seller operating through a limited company, there is effectively a double tax charge, firstly on the seller company and secondly on the shareholders on distribution of the proceeds.

It is a general rule that buyers would prefer the asset purchase and sellers the share purchase. There are a huge number of issues to look at either way and you will need the help of an accountant and a solicitor to guide you through this. The tax differences can be extreme.

For any help and guidance please do get in touch.

Best wishes

Paul

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