When buying or selling a business, a buyer will need to consider how you will buy that business; there are two methods to choose from. A buyer can either purchase the shares of a company or the assets of a company. Whichever method is decided upon, it is important to bear in mind that it is rarely straightforward and a buyer will need to weigh the pros and cons of each one depending upon the buyer’s objectives. A good solicitor experienced in corporate matters at this stage of a transaction can be very helpful.
Where a buyer is purchasing shares, the buyer also acquires the company’s liabilities and obligations. Due to the nature of the transaction matters can get complex and the buyer often ends up seeking warranty protection on a whole host of matters depending on the nature of the business being brought; some common areas for warranties include tax, contracts the company has entered and litigation and employees.
Alternatively, where assets are purchased and a sale agreement is entered into, the buyer only purchases those assets that have been set out in the agreement along with any liability attached only to those assets.
The assets will need to be transferred separately by the seller and he will need the cooperation of third parties who may have to consent to any contract assignments; these may be third parties such as banks or customer contracts.
When deciding which method to opt for, there are many other considerations including financial, legal and tax considerations as well as mere preference. Generally, sellers have a tendency to prefer the tax advantages of share purchases, whereas buyers find asset purchases more attractive from a tax standpoint.
Whichever method is chosen good legal advice at the outset can be invaluable. Nath solicitors are experienced in these matters and can help guide you through the transaction from start to finish.
The above does not constitute legal advice and is a general position of the law as at 30th May 2017. Please contact us for further information.