|
Home / Business
Do I Buy The Assets Or The Shares In The Company I Want To Buy (“The Target”)
By:Maitland Kalton
When you are looking at a company or business purchase, for a buyer the answer will usually be that it will be simpler quicker and more cost effective to buy the assets of a business rather than the shares itself. For the seller it will usually be more tax effective to sell the shares in the business. The reasons for this view are outlined below. In our opinion, selling the business assets rather than the shares (i.e. a business sale) will usually result in quicker more cost-effective deals because the rules on financial assistance do not apply to asset sales (see below) and the buyer can be more selective about which assets (and liabilities) the buyer takes on.
Legal Effect
Where a buyer acquires shares in the Target, the accrued liabilities of the Target remain in those shares, hence extensive warranties and disclosures are sought by the buyer to ensure as far as possible the legal position of the buyer. With asset purchases, the liability of the Target remains in the hands of the seller and the buyer has greater scope to cherry pick which assets she or he wishes to acquire. In practice, a “clean break” from the business is never generally available for the seller, as the buyer will very often want some post completion warranties from the seller, regardless of which structure is used to acquire the business.
Consideration
With company sales (share sales), the purchase monies go into the hands of the individual shareholders. Where an asset sale takes place the sale proceeds go into the hands of the Target. Clearly different tax considerations apply depending on which scenario is adopted.
Title
Where a share sale takes place then all the assets owned by the company remain with the company, and transfer of ownership in the assets is not an issue. Where the deal is structured as an asset sale, the transfer of assets can be more complicated, particularly where third party consents are required (typically for transfers of leases) and where there are employees (due to the complex rules (Transfer of Undertaking Protection of Employment Regulations – “the TUPE rules”) where there is a sale of a going concern. Where delays arise, solutions can be put in place to ensure the ownership of the asset is ultimately transferred to the buyer. The extent to which this is a workable solution will depend on how fundamental the relevant asset is to the business and the extent to which buyer and seller are willing to work together to develop a workable solution.
Employees
If the buyer wishes to carry on the business in succession to the seller, then as a matter of practicality it makes little difference whether a share sale or asset sale takes place. In both cases, the buyer “inherits” the employees and their accrued rights (under the TUPE rules).
If an asset sale is taking place with no intention to carry on the business then this situation would need to be covered by warranties to protect both buyer and seller from potential employee claims.
Tax
Stamp duty
Duty payable on share transfers is currently 0.5%. Duty payable on the transfer of certain assets including freehold or leasehold property can currently go up to 4%.
Capital Gains Tax – Share Sale By Individual Shareholders
The issue to bear in mind here is that the seller receives the consideration directly for her or his shares.
For sellers the biggest tax benefit they have is likely to be the dramatic effect of taper relief. This can reduce capital gains tax liability to under 25% after two years ownership of a “qualifying asset”, the most important of these being certain shareholdings in unquoted companies, and assets owned by an individual and used in the individuals company (provided the shares in that company meet certain restricted ownership requirements).
Corporation Tax – Asset Sale By Company
There are two tax points where the company sells its assets. Firstly the company may suffer a capital gains tax charge when disposing of the relevant asset to the buyer. Secondly the remaining consideration held the company needs to get to the shareholders. If the net proceeds are distributed by winding up the company the shareholders are treated as disposing of their shares for capital gains tax purposes. If the proceeds are distributed as a dividend involves further tax liability both for the company and the individual receiving the dividend.
Financial Assistance
A company may not give direct or indirect financial assistance to a person acquiring the shares in that company. Typically this arises where a buyer wants to acquire the shares in a company and the buyer finances the acquisition by arranging for the company to charge its assets to a bank fund the share purchase. There is a mechanism for allowing a company to give this assistance but it can be costly and time consuming.
The rules on financial assistance do not apply to asset sales.
http://www.kaltons.co.uk
Kaltons Solicitors
Digg
del.icio.us
Blink
Stumble
Spurl
Reddit
Netscape
Furl
Article Source: http://www.articles2k.com
|
|
| Top Business Articles |
- 1). A plus C Systems and Affirmative Insight, Inc. announced an exclusive partnership. By : Bartosz Lewandowicz
Affirmative Insight Inc. provides information technology solutions in the areas of IT security, networking, service and support, e-business, web design, web hosting and software development. By partnering with A plus C Systems, Affirmative Insight, Inc. expands its offer with a comprehensive suite of software products – Uplook, Statlook and Anasil – tool kit for IT asset management and network monitoring.
|
|
|
- 3). The Thick Line Between Buddy And Boss By : Tim Knox
Q: One of my key employees is giving me trouble. He has started showing up late for work and has developed a bad attitude in general. The rest of my employees are complaining since they are having to take up his slack. I've tried talking to him, but he doesn't seem to listen. To make matters worse, he has become one of my best friends since I hired him five years ago, so firing him is out of the question.
|
- 4). The Man Who Makes $1 Million in Affiliate Commissions By : David Kamau
His success is phenomenal. Well, not many can claim to make $1 Million a year in affiliate marketing. And at only 27 years of age!
His name is Jeremy Palmer. Until recently, he was virtually unknown in the marketing circles, simply because he preferred to make his money silently.
Now this Jeremy guy has written an ebook about his affiliate marketing techniques.
|
- 5). Overcoming Obstacles By : Debbie Milam
Discover how a young woman overcame serious life challenges through connecting with her inner spirit.
My story begins 38 years ago in Queens
|
- 6). International Investment In Bulgaria Still Strong By : Tim Wright
The strong growth in the Bulgarian economy is continuing and this is emphasised by the confidence in the market shown by companies such as GE for example.
GE Commercial Finance Real Estate recently announced it will be acquiring a 50% stake of the Mall of Sofia. The Mall is an enormous trade, business and entertainment centre currently under construction in the heart of the capital city.
|
|
|
- 8). Should we believe the experts? (Part III) By : Mike T. Davis
Why do we use experts? To predict the future. Consider a patient who is asking a physician about the future effects of a certain drug, or the investor who is asking a stock analyst about the future prices of a certain stock, or the manager who is asking a human resource manager about the future performance of a certain candidate, or the brand manager who is asking a market researcher about the future sales of a certain new product.
|
|
|
|
|
| New Business Articles |
|
|
|
|
|
|
|
|
|
|
- 6). How To Find Low Cost Items That You Can Resell For Profit By : Gregg Hall
The key factor in the success or failure in a business that specializes in closeouts, liquidations, or selling products on eBay is finding items at good prices that you can make a profit on when you resell them. Contrary to popular belief it is when you buy the item that you make your profit as what you pay for something is what determines how much your end profit will eventually be.
|
|
|
|
|
|
|
|
|
|
|
