EveryMonth (July 2010): Selling Private Companies – Assets or Shares?

If you own a business carried on through a company and decide to sell, should you sell the shares in the company, or just sell the business assets? The right answer will often be dictated by tax considerations, but there are also legal and administrative issues…

Non-tax considerations


With an asset deal the only liability you may inherit is employee liabilities. If you buy shares, however, you buy a company ‘warts and all’. There could be serious unknown and unquantifiable liabilities, including tax, uninsured risks on past contracts, liability risks for defective or dangerous products, or uninsured negligence claims.

Even warranties will not protect against the seller’s insolvency, his disappearance overseas, or a liability which is discovered after the warranty period. Also, don’t underestimate the management time and professional costs of dealing with unexpected liabilities.

The costs (legal, due diligence and so on) for a share sale can be prohibitive, so for smaller transactions (certainly under £500,000) you may opt for an asset rather than a share deal.

Third party consents

On the other hand, you need to secure third party consents for an asset deal, for example from the landlord of leasehold premises occupied by the seller. This may in turn lead to requests for rent deposits or personal guarantees from directors of the buying company. There may also be important trading agreements with suppliers or customers which will need to be renegotiated.


In a share sale all assets and contracts transfer without formality, where in an asset purchase transferring these may cause a lot of work for the buyer.

Tax considerations for sellers

When you sell company shares, you may have to pay Capital Gains Tax at up to 28% under the new rate announced by the Chancellor. However, if you have been a director or employee of the company for at least a year, and hold at least 5% of its share capital, you may also be entitled to ‘entrepreneur’s relief’. Then you only pay tax at 10% on the first £5m of lifetime gains, and are entitled to an annual CGT allowance (currently £10,100).

If the assets are sold by the company there may be a double tax charge: corporation tax on the goodwill and then tax for the shareholders when the cash is taken out of the company: ask your tax adviser to calculate the different tax costs.

Tax considerations for buyers

When buying shares in a company, you pay 0.5% stamp duty, whereas on an asset deal if land is included, stamp duty land tax at rates of up to 4% may be payable. If you buy intangible assets (eg goodwill, trademarks and know-how), you may be able to claim significant tax relief.