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Understanding the Differences Between an Asset Purchase and a Share Purchase.

Uncertainty.  Risks.  Challenges.

Many businesses have been through a lot in recent months; however, for some, the turbulence has now given way to, if not created, opportunities for growth.

Growth can be realised through a variety of strategies including organically, more rapid expansion could be achieved through acquisition.  Such an acquisition can take the form of either an asset purchase or share purchase.

Commercial Paralegal at Wollens Lucy Rundle explores some of the key differences between these two main types of acquisitions.  Our article assumes that the target business will be a going concern and UK-based, that preliminary risk assessments have already been conducted by the buyer, and that the intended resulting transaction will be a bilateral sale between a willing buyer and a willing seller.

Asset Purchase

As the name suggests, under an asset purchase the buyer acquires a clearly defined package of business assets, rights and, occasionally, certain liabilities.  An asset purchase is sometimes referred to as a business purchase.

In most cases, the specific elements of the business to be acquired will be determined by what is negotiated and documented between the parties and will therefore differ from deal to deal.  A typical asset purchase may, however, include any or all of the following assets:

  • stock;
  • property, plant and equipment;
  • information technology;
  • intellectual property rights;
  • goodwill; and/or
  • the benefit of supplier and/or customer contracts (where feasible).

From the buyer’s perspective, there are some typical advantages and disadvantages to consider as part of an asset purchase, including:


  • Flexibility: Subject to agreement between the parties and, in the case of liabilities, notwithstanding certain (limited) exceptions, assets and liabilities can be included in, or carved out from, the transaction. The purchase package can be tailored and this ability to pick and choose can help apportion risk.


  • Complexity: With flexibility and choice comes the requirement to identify, negotiate, define and document exactly what is (and is not) being bought. An asset purchase can easily grow in complexity, including through the need to follow the specific transfer formalities for each asset.  Precision and clarity are needed to avoid unwittingly missing key business assets from the transaction.
  • Consents: Consent from third parties – including suppliers, customers, landlords and regulators – may be required to assign or replace contracts in order for existing trading arrangements to be properly transferred. Depending on the nature of the business, certain licensing approvals may also be necessary to allow the business to continue to operate.
  • Impact of Statute: Where employees are involved, Transfer of Undertakings (Protection of Employment) (TUPE) regulations may apply, potentially resulting in certain employment liabilities. Similarly, where land is purchased as part of the transaction, environmental liabilities may result.

Notwithstanding each of these broad advantages and disadvantages, in certain circumstances an asset purchase may be the only acquisition structure available to the parties, for example, when the target business is run by a sole trader or partnership, or when only a part of the business is being acquired.  If such limitations do not apply, however, the parties may have the freedom to consider whether a share purchase might be an option.

Share Purchase

 Under a share purchase, the buyer acquires the share capital of the company operating the target business.  Typically, the only assets transferred are the shares in the company.  The target company – a legal entity in its own right – continues to own and be responsible for all of the assets and rights, and is subject to the burden of all liabilities and obligations.

A buyer considering a share purchase should consider the general advantages and disadvantages associated with this structure, including:


  • Single Asset: The purchase of a single asset – the target shares – can have the effect of simplifying the structure, reducing the processes associated with asset transfer formalities, and minimising the risk of inadvertently excluding a key business asset from the deal.
  • Continuity: With the exception of any contract or licence containing a change of control provision which could be triggered by the transaction, external consents and approvals will not be required in many cases. Underlying arrangements will largely remain undisturbed and the very nature of the transaction can, therefore, result in better continuity of business operations.
  • No TUPE Obligations: Even where employees are involved, there is usually no obligation to inform and consult employees prior to the purchase. Employment contracts between the employee and company remain in place.


  • Liabilities: All liabilities – historic and current, undisclosed and unknown – remain with the target business (the company). An in-depth due diligence process can help to understand the extent of the company’s liabilities and obligations, and the buyer can, accordingly, attempt to mitigate some of this exposure through a price reduction or contractual protections; however, this might require protracted negotiations.
  • Shareholder Approval: Subject to any provisions in the target company’s articles of association, it may be necessary for approval to be sought from and given by all of the shareholders. The board of directors will also need to consider and approve the transaction and the transactional documents as part of a minuted board meeting.
  • Administrative Requirements: After completion, certain filings will need to be made with Companies House and the target company’s registers may need updating.

Which approach is right for me?

Whilst an acquisition, be it by way of a purchase of the assets or the shares, can be challenging, a carefully considered and well-executed acquisition can accelerate growth and widen business opportunities.

If an acquisition seems like a legitimate option for your business growth, it is important that you have a good understanding of the different routes.  Whether an asset purchase or share purchase is the most appropriate will depend on your own unique circumstances and is, of course, also likely to be influenced by the preferences and circumstances of the seller.  Crucially, an informed decision will have to take into account the legal, commercial, and financial aspects (not least, the tax considerations) of the transaction from the outset.

From setting your strategy and identifying the target, through to conducting vital due diligence and documenting the transaction, a successful acquisition requires an investment of time and expertise at every stage.  However, neither an asset purchase nor a share purchase need be daunting. 


Whichever side of the transaction you are on – whether you are buying or selling – and whatever size deal you are contemplating, the Wollens Company and Commercial team has the expertise to assist.  Contact us today for an informal chat without obligation.




Lucy Rundle, Commercial Paralegal at Wollens 

If you need business support contact Lucy on 01392 301096 or via email, [email protected]

Or email [email protected]  and one of the Wollens team will contact you as soon as they are available.

Company & commercial