Should you buy a company's shares or assets?

When buying a business you must choose between acquiring its shares or its assets.

There are advantages and disadvantages to each, together with fundamental differences in both the legal and the tax treatment.

Share purchase

• Greater due diligence is required as the company is being acquired along with its historic liabilities, so you need to investigate its financial stability, management, products and services, competitive landscape, and other factors
• No immediate tax relief is available for the cost of purchasing the shares. However, if the shares are sold in the future and the original acquisition has been structured in the right way, the gain may be exempt from corporation tax
• Tax warranties and indemnities need to be included in the sale agreement to cover any potential future tax liabilities arising from any issues prior to completion

Asset purchase

• Less due diligence is required as the buyer has the ability to negotiate which assets are being purchased, leaving behind any liabilities. This means the transaction can often be completed more quickly
• Some element of the deal is likely to include an amount for goodwill. No immediate tax relief is given on goodwill, only when it is disposed of in the future. Most other assets should qualify for tax relief in the form of capital allowances
• No tax warranties or indemnities are necessary as any future tax liabilities arising prior to completion remain with the seller

If you are buying a business, it is vital to involve both lawyers and accountants at the early stages, to ensure that careful consideration is given to all the circumstances and the correct structure is used.