Share Purchase Agreement Vs Asset Purchase

A single paid profit is generated by a share sale. In the case of an asset sale, the sale of each asset class has different tax consequences that must be carefully considered and distributed. A share transaction is usually concluded by buying or selling 100 per cent of the company`s shares. This type of transaction is less complex than an asset agreement that requires fewer supporting documents. Documentation is only required for the transfer of shares and occasionally for the sale of shareholder loans. On the other hand, the proceeds of the sale are paid directly to the shareholders of the company when they buy shares, which can result in a reduction in tax debt. The sale of shares has no impact on the continuity of the transaction, which continues uninterrupted. If assets are sold, it may be impossible to transfer assets or agreements without the consent of a third party. The purchaser buys the target`s stock and takes the objective as it is found, both in terms of assets and liabilities. Most contracts that have a purpose — such as leasing and permits — are automatically transferred to the new owner.

For all these reasons, it is often easier to go with a stock purchase than with a purchase of assets. Buyers in an asset sale will generally want to allocate a large portion of the purchase price in stock and depreciable assets in order to reduce future taxable income. On the other hand, sellers in an asset sale want to minimize the purchase price allowances for the stock, as they pay taxes on this amount. On the other hand, the proceeds of the sale are paid directly to the shareholders of the company when they buy shares, which can result in a reduction in tax debt. For example, the seller may be eligible for the burden relief on the contractor. In essence, it allows the seller to apply a reduced rate of 10% capital gains tax on the profits that the seller must make when selling a qualified asset (for example. B of the company). Each seller can claim up to $1 million in business relief in their lifetime and they can claim their rights as many times as they wish, provided the claims are within that $1 million limit. Many more guarantees are sought when buying shares, because the buyer assumes all the debts of the company, whether they are known or not. In the event of an asset acquisition, the buyer will seek certain guarantees, taking into account the assets acquired.

To support your decision-making, we have compiled a non-exhaustive list to illustrate some of the advantages and disadvantages of an asset acquisition compared to a share purchase: some contracts may have transfer bans. This means that it may be easier to sell shares than to reallocate or renew a large number of contracts or licenses. Due diligence is an essential prerequisite for contractual protection and can help determine the required level of protection and the required areas of protection, as well as the potential risks that the purchaser should avoid altogether. At any point in the due diligence process, something could be revealed, the nature of which means that the buyer decides not to continue the purchase, to reduce the price or, at the very least, to seek specific protection in the main agreement.