There are two methods of acquiring a business. One is to buy shares of the company that owns the assets, the other is to buy the assets which make up the business, in some cases together with certain liabilities of the business.
The two are fundamentally different. If shares in a company are purchased, all its assets, liabilities and obligations are acquired (even those that the buyer does not know about). If assets are purchased, only the assets (and liabilities) which the buyer agrees to obtain and which are identified are acquired.
An asset purchase is often more complex than a share purchase due to the need to transfer each of the separate assets constituting the business. More consents and approvals are likely to be required than on a share purchase; for example, the consent of customers and suppliers to the assignment or novation of existing contracts. There is, however, a greater amount of flexibility on an asset purchase. If, for example, a target company has liabilities which cannot be easily quantified or identified, or if only part of the business of the target company is to be acquired, then an asset purchase may be the favoured option.
The other key commercial difference between the two transactions is in the nature of what the buyer acquires: on a share purchase it acquires a company owning a business and running it as a going concern (subject to any change of control provisions). In contrast, an asset purchase will not automatically transfer contracts (other than employment contracts in a relevant transfer) or existing trading arrangements to the buyer. Whether this is an advantage or a disadvantage will obviously depend on the attitudes of third party customers and suppliers, the buyer’s strategy for the acquisition and how it intends to integrate the new business.
As well as the commercial considerations, there are important tax considerations to be taken into account when structuring an acquisition.
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