SHARE SALE VS ASSET SALE
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SHARE SALE VS ASSET SALE
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Every acquisition eventually asks the same structural question: is this a share sale or an asset sale. A share sale transfers the company itself, and the buyer inherits its full legal and tax history. An asset sale transfers specified assets into the buyer's own entity, and the seller's company keeps its history. Lenders generally prefer the clean entity an asset sale creates, though share sales are financed regularly with deeper diligence.
The structure question rarely arrives when a buyer expects it. It shows up in the information memorandum a business broker sends through, or in the first draft heads of agreement a solicitor prepares, worded as a single line: is this a share sale or an asset sale. First-time buyers often read that line as a formality and move on. It decides what you actually acquire, and it shapes how a lender reads the whole transaction.
A share sale transfers the company itself. The buyer steps into the shareholding, and the company continues on as the same legal entity it always was, carrying everything attached to it: its contracts, its obligations, its history.
An asset sale transfers specified assets, the equipment, the contracts that can be assigned, the goodwill, the brand, into the buyer's own entity. The seller's company stays behind, along with everything that happened under its name before settlement.
Buyers who have not thought about the distinction usually assume the two are interchangeable paperwork choices, when in fact the structure decides what history rides along with the business you now own, and it is the first thing I ask on any deal that crosses my desk.
Scroll through the structure below and watch where the same six items land. Four of them cross either way, and the two that only cross in one direction are what a lender is really assessing.
Contracts cross only where the counterparty consents to assignment.
Contracts cross only where the counterparty consents to assignment.
This diagram shows six items at settlement: trading name and goodwill, equipment, customer contracts, employees, tax and legal history, and unknown liabilities, crossing a line between the seller's company and the buyer's entity. In a share sale, all six cross with the buyer, so the buyer takes on the company's full history. In an asset sale, the four operational items cross into the buyer's own entity, while the company's tax and legal history and its unknown liabilities stay behind with the seller. Contracts cross only where the counterparty consents to assignment.
The company's tax and legal history and its unknown liabilities are the lines that matter. In a share sale they cross with everything else, because the buyer is taking on the whole entity. In an asset sale they never leave the seller's company.
Banks generally prefer asset sales because the borrowing entity starts without inherited history sitting behind the general security agreement. There is no earlier legal history to absorb, and no unknown liability that could surface after settlement and compete with the bank's own security position. My line to clients working through this fork: an asset sale is generally cleaner from a lender's perspective.
A share sale is not unfundable. I have taken share sales to lenders and had them approved. Expect deeper due diligence, warranties in the sale agreement doing more of the work, and the structure question surfacing again once the deal reaches credit assessment.
The warranties carry more practical weight in a share sale because they are what covers a buyer for what cannot be seen at settlement: employee entitlements, an unresolved supplier dispute, a tax position the vendor has not disclosed. A lender reading the deal wants to see that ground covered properly in the sale agreement, not assumed away.
Flag the structure question early, before a solicitor drafts anything, because reshaping it after the heads of agreement is signed costs time, and can reprice the deal with the lender you were counting on.
A share sale is sometimes the only workable route. Certain licences, accreditations, and contracts sit with the company itself and cannot be reassigned to a new entity without the counterparty's consent, and chasing that consent on every contract can cost more time than the deal can absorb. A hospitality licence tied to the company, or an accreditation built up over years, are common examples where the buyer has no real alternative to a share sale. A long customer agreement can carry the same problem. Some sellers also have their own reasons for selling the entity whole rather than carving assets out of it.
When a share sale is the right structure, the buyer's real protection is due diligence, and warranties and indemnities drafted properly into the sale agreement, which is solicitor territory rather than something FGO structures directly. What FGO speaks to is the financing implication the structure creates.
Tax treatment differs between the two structures for both buyer and seller. That question belongs with your accountant, and I will leave it there.
The structure fork is one of the first three questions I ask on any deal I look at, alongside the price and how that price actually gets funded. Have the share versus asset conversation with your solicitor and your accountant in week one, then bring the answer to the financing conversation. The two shapes present very differently to a credit team.
I am happy to look at a deal in either shape early, and tell you honestly how a lender is likely to read it, before anything gets drafted.
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