Acquisitions
While entrepreneurs may have experience in plying their own trade, it takes a certain critical mass and business acumen before one finds him or herself comfortable enough to contemplate the acquisition of another business or company. For others, it may simply be a leap of faith, motivated by the promise of growth. Nevertheless, it is useful to have at least a working knowledge of the concepts involved before submitting an offer.
To this end, you should take some time to consider the vehicle of the acquisition i.e. whether it should be structured as a business purchase or a share purchase. In practice, this may be academic if it is not up for negotiation. Nevertheless, knowing the advantages and disadvantages of both structures will prepare you for the processes that will be involved.
Asset Purchase
Advantages | Disadvantages |
The buyer can pick and choose which assets to purchase and which liabilities to leave behind Fewer protections are needed in the sale and purchase documents which usually means less costs are involved.
| Contracts do not automatically transfer and therefore may require separate instruments. Third party consents to the transfer of assets and contracts may be required. The Transfer of Undertakings (Protection of Employment) Regulations 2006 apply. |
Share Purchase
Advantages | Disadvantages |
Transfer of the shares themselves only require stock transfer forms. There is no change in the ownership of the assets or disruption of the contractual relationships in the absence of specific change of control provisions. The Transfer of Undertakings (Protection of Employment) Regulations 2006 do not apply. | The company comes with all known and unknown liabilities. Due diligence and the sale and purchase documents are more extensive and negotiations are heavier due to the increased risk.
|
Please note that the above is intended as a guideline only and does not obviate from the need to obtain professional advice; it also does not comment on the advantages or disadvantages of either structure from a tax perspective which is outside of this firm’s area of expertise.
Please contact Sing Li, the author of this article, on 01582 514 356 or by email on [email protected] if you would like to discuss the matters raised in this article or any other aspect of commercial law.
Disclaimer: General Information Provided Only.
Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice.