sales of assets or shares

Selling Shares or Assets ? … it matters

I’m currently helping someone sell their business to a huuuuge perfect-fit buyer who popped up out of the blue with a great life-changing offer…

BUT

… and there has to be one…

… the buyer doesn’t want the company… they just want to buy selected assets…

OOOPS

Below I go into the pros & cons of selling the shares in your company or selling the company’s assets… but just now I want to focus on one thing…

The real Bottom Line…

… I’m talking net proceeds received by the seller on the sale of their single biggest financial asset…

Sell the shares in the company and the seller will be taxed at the Entrepreneurs Relief rate of 10%

Sell the assets of the company and the seller will be double taxed… because… 1st the company will pay corporation tax on the gain on selling the assets… & 2nd the owner will be taxed when they try to extract the cash from the company…

In this case an offer of £4m results in roughly net cash proceeds of

£3.6m if the company’s shares are sold

£2.1m if the company’s assets are sold

They’ll get 70% more cash in their hand if they sell shares and not assets

What to do ?… hold out for a share sale ? … or use the huge difference in net proceeds to shave the selling price and encourage the sale of shares…

In this case the seller can drop the price to £2.4m if the buyer will take shares… and still come out ahead of an asset sale…

That leaves a fair bit of scope for the imagination… and deal-making?

Some slightly dull detail… from the sell side

In a share sale the buyer acquires the shares of the company that owns the trade and assets of the business

In an asset sale the buyer acquires the assets which make up the business (e.g. property, machinery, intellectual property and goodwill)

Typically a share sale is more attractive from a tax perspective to a seller than to a buyer… an asset sale will often be more tax efficient for a buyer than a seller (but recent tax changes have narrowed the gap)

All you need to know about Entrepreneurs Relief 

The seller’s pros and cons

Share Sale

Pros
* A share sale is simpler for the seller as the company is sold as a ‘going concern’

* It is a more discreet sale… the business will carry on as usual

* The buyer of shares takes on all the company’s problems & liabilities

* It is usually significantly more tax efficient for the seller than an asset sale

Cons
* A share sale is a greater risk for the buyer than an asset sale because of the liabilities the buyer may be exposed to… so…

* A buyer may apply a discount to reflect the increased risk

* The buyer may expect the seller to give extensive warranties and indemnities as protection against unknown liabilities

Asset Sale

Pros

* The seller is your company and so any warranties or guarantees you give are given by your company, not you personally… (but you may be bounced into giving them anyway!)

* You can hold onto  parts of the business (and even sell to a different purchaser at a later date)

* An asset sale  involves the buyer in fewer risks and so the transaction may be more straightforward.

Cons
* Not as tax efficient for the seller as a share sale, as there are two layers of tax.

* The buyer will probably ‘cherry pick’ the assets they want to buy.

* The sale will be logistically more complex than a share sale (legally transferring all assets and contracts etc can be messy)

* You’ll still own the company and may have to sort out winding it up before taking out the cash proceeds