MAY 19, 2020

Share Purchase v Asset Purchase – what is the difference?

Goldstein Legal understand that selling or purchasing a business or existing franchise can be daunting. In this blog, we hope to clarify the difference between a share and asset purchase to help address the confusion and assist those thinking of acquiring or selling a business or franchise at this time.

Asset Purchase

An asset purchase is the transfer of certain activities or assets related to a business, and does not include the sale of the business entity that owns the assets. For this purpose, the seller is the entity that owns and operates the business, such as a limited company. An asset purchase may be more attractive to a buyer as it allows them to identify the assets they wish to purchase and the liabilities they do not want to take on. For example, a buyer will typically seek to exclude liabilities (such as tax and debts) as part of the sale. Accordingly, an asset purchase can be incredibly detailed, and it is important for the parties to clarify from the outset what is and is not included in the transfer.

An Asset Purchase Agreement is typically drafted to facilitate an asset purchase and will need to address existing contracts and any other relevant legal items required to give effect to the transfer. A typical asset agreement will deal with the legal transfer of ownership of items, including; premises, client contracts, goodwill, machinery, stock, intellectual property, creditors and debtors. Special consideration may also need to be given to any employees and their rights under TUPE legislation, as there may be an automatic transfer of all existing employment contracts. The seller will be required to provide warranties for each of the assets, and the buyer will be able to rely on this should there be a problem with any of the assets purchased.

In the event the sale includes the transfer (assignment) of a lease, this can potentially pose problems as the landlord for the premises will need to give their legal consent to the assignment. As a landlord is not party to the asset sale, they often lack the motivation to ensure the assignment progresses in a timely manner and will very likely seek reimbursement for their legal costs associated with the assignment.

Share Purchase

In contrast, a share purchase occurs when all shares in a company are purchased from the shareholders and ownership of the whole business is transferred to the buyer. In this circumstance, the seller is the individual/s who directly own the business and not the legal entity under which they operate. While a share sale ensures there is continuity in the business, it also means the buyer takes on all existing liabilities and historic issues. For this reason, share sales may be less attractive to a buyer who does not wish to inherit the existing business risks. It is worth noting that some franchise models are only able to be sold by share purchase, such as those involved in domiciliary care.

A Share Purchase Agreement is the legal document that is drafted to carry out the sale and purchase. Typically, an agreement will consider; completion accounts, tax indemnities (relating to tax liabilities), payment schedules if relevant, and warranties provided by the seller. The sale must also comply with the requirements of the Companies Act 2006, and the steps required therein such as board and shareholder resolutions, dealing with stock transfer forms, and the resignation and appointment of directors.

If you are considering selling or buying a business or franchise, Goldstein Legal can help. Contact our experienced team of solicitors on 01753 865 165 or [email protected]

Roz Goldstein has delivered a webinar offering guidance to those considering the sale of their franchise, which is available at the following link –

How can we help you?

Goldstein Legal is part of Nexa. Goldstein Legal are members of the British Franchise Association and offer a range of legal services for franchisors and franchisees, regularly advising both businesses and individuals. Contact any of our friendly team for a confidential, no obligation chat to find out how we can help you.
Roz Goldstein

Roz Goldstein


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