Share sale vs asset sale: the difference, the advantages of each and the trade mark trap

Should you structure a business deal as a share sale or an asset sale? The difference is simple to state and expensive to get wrong. In a share sale you buy the shares and the whole company comes with them. In an asset sale you pick out the assets you want and buy only those. Each route has real advantages, and whichever you choose, the agreement that sits behind it needs to protect you properly.

Share sale vs asset sale: what's the difference?

In a share sale you usually buy 100% of the shares in the company. The entire company comes with the purchase: its contracts, its staff, its assets and its liabilities, known and unknown. Nothing is left behind because nothing changes hands except the shares themselves.

In an asset sale it is different. You cherry-pick the assets you want and buy only those. The company that owned them stays with the seller, along with anything you did not choose to take.

In either case I would advise having a strong sale and purchase agreement in place, with extensive warranties that protect your interests. The structure decides what you are buying; the agreement decides what happens if what you bought is not what you were told. There is a separate page on the share purchase agreement if you want to understand what goes into it.

Advantages of a share sale

• It can be quicker. There is really only one main transaction: the sale of the shares from the seller to the buyer. The company's contracts, assets and employees stay exactly where they are, inside the company, so there is nothing to transfer individually.
• Legal fees can be lower. If you are not conducting due diligence, the legal fees can be lower because only one contract is needed, the share purchase agreement. That qualification matters: once due diligence comes in, the work on a share sale grows, because you are investigating the whole company rather than a handful of assets.

One drafting point I would insist on if you are buying shares: make sure the share purchase agreement states that the shares are being sold to you with full title guarantee and free from any encumbrances. You want to know that the seller actually owns what they are selling and that nobody else has a claim over it.

Advantages of an asset sale

• You limit your liability. This is the main advantage. You only take on the assets you want, and any known or hidden liabilities usually do not come along with the purchase. They stay with the seller's company.
• Due diligence can cost less. If you are conducting due diligence, the legal costs of those investigations are lower, because you are only investigating the assets you have selected rather than the entire company and its history.

Do not forget the trade marks

If you are doing an asset sale, do not forget about the trade marks. Just because you are buying a website that displays a logo does not mean the logo comes with the website. The trade mark is a separate asset. A separate trade mark transfer agreement needs to be signed by both parties, and that document then needs to be presented to the UK Intellectual Property Office so that the UK IPO can register the transfer from the seller to you. Miss this step and you may own the website but not the brand on it.

Choosing between them

A share sale suits a buyer who wants the whole business, intact, with the least disruption, and who is prepared to take on its history. An asset sale suits a buyer who wants specific parts of a business and wants to leave the risk behind. Sellers and buyers often prefer different structures for exactly these reasons, which is why the choice is usually one of the first things negotiated. For the buyer's decision in more depth, see share purchase or asset purchase.

Next steps

Decide what you actually want to own: the company, or a defined list of assets. Then have a corporate solicitor draft the share purchase agreement or asset purchase agreement with proper warranties, and on an asset sale make sure every trade mark is assigned separately and registered at the UK IPO.