Practical considerations when buying or selling a business

In a share sale, the company’s legal identity remains intact, while in an asset sale, only selected parts of the business transfer to a new entity. Understanding these structural differences early is essential for both buyers and sellers to protect value, minimise disruption, and ensure a smooth transaction. 

Read our article on the key differences between share sale vs asset sale for more information

Continuity of pre-existing contracts and licenses:

In a share sale, the company itself remains unchanged. Only its ownership transfers. As a result, contracts and licences held by the company generally continue as before.

However, parties should review:

• Change-of-control clauses
• Consent requirements
• Termination rights triggered by ownership changes

If a key contract contains a change-of-control provision, the counterparty’s consent may be required before completion. Failure to identify this risk early can delay or derail 

In an asset sale, the entity carrying on the business changes. Pre-existing contracts must therefore be assigned or novated to the buyer.

Common examples include:

• Commercial leases
• Supplier and customer contracts
• Intellectual property licences
• Regulatory permits

Assignment often requires third-party consent, additional documentation and, in some cases, fees. If contracts are not validly transferred at completion, the buyer may face operational disruption, increased supplier costs or loss of key intellectual property rights.

Failure to properly manage contractual transfer risk can cause significant financial harm and threaten business continuity.

Employment liabilities and TUPE:

Share sale – employees remain with the company

In a share sale, employees remain employed by the same legal entity. Their contracts continue unaffected because the employer does not change.

Accordingly, TUPE does not apply in a typical share sale. However, buyers will still scrutinise employment liabilities during due diligence.

Asset sale – automatic transfer under TUPE

In an asset sale, the business transfers to a new employer. The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) may apply, automatically transferring employees assigned to the undertaking to the buyer.

This means:

• Employees transfer on existing terms
• Pre-existing employment liabilities may transfer
• Consultation obligations arise

Buyers must carefully assess employment risk before completion, while sellers must comply with information and consultation obligations to avoid claims.

Due Diligence:

The purpose of due diligence is for the buyer to investigate the assets, liabilities, trading performance and finances of the target company. By the end of this process, the buyer should aim to gain a complete picture of the target company and its critical success factors, strengths and weaknesses. 

There are commonly three types of due diligence:

• Commercial – carried out by the buyer to discern whether or not to acquire the target company;
• Financial – the buyer’s accountants investigate the target company’s finances to ensure that the proposed price is accurate and reflects its true value; and
• Legal – after the buyer is satisfied on the first two points, then the buyer’s solicitors will raise various questions of the seller’s solicitors.

Legal due diligence will often involve a lengthy questionnaire from the buyer’s solicitor requesting information from the seller. The focus of legal due diligence will depend on the nature of the company being acquired.

Warranties and indemnities:

Because buyers receive limited statutory protection, risk allocation is managed through contractual protections. 

Warranties

Warranties are statements of fact given by the seller about the condition of the business. If inaccurate, the buyer may claim damages for breach of warranty, provided loss and causation are proven.

Some common areas covered by warranties:

• Capacity/authority to sell
• Ownership of shares
• Group structure
• Accounts
• Contracts
• Licences/consents
• Litigation
• Title to assets
• Intellectual property rights
• Employment matters
• Taxation matters

Warranties given on these areas relate to matters in the past or present but will not normally relate to the future performance of the company.

Indemnities

Where a specific risk is identified, the buyer may seek an indemnity. Unlike warranties, indemnities provide a direct right to recover loss without proving diminution in value.  Indemnities provide a guaranteed remedy to the buyer in circumstances where a breach of warranty may not necessarily give rise to a claim in damages

Tax implications and structural impact

Tax treatment differs significantly depending on whether a transaction is structured as an asset purchase or a share purchase.

Asset sale

• The selling company usually pays corporation tax on gains from the sale of assets
• If shareholders later extract the proceeds from the company, for example, through dividends or distributions, this may trigger an additional tax charge at the shareholder level, potentially resulting in a form of double taxation.

Share sale

• Sale proceeds are paid directly to shareholders.
• Typically treated as a disposal of shares for Capital Gains Tax (CGT) purposes.
• Shareholders may qualify for Business Asset Disposal Relief (BADR), reducing the CGT rate on qualifying gains.

BADR has been a recent target of budgets, with the previous limit of 10% on all gains on qualifying assets raised to 14% on 6 April 2025, and the limit to be raised again to 18% effective on 6th April 2026.

The tax consequences of each route vary based on the type of assets involved, the company’s tax position, and how the proceeds are extracted. 

Tax implications should be considered early in the transaction process, and you should seek professional advice from both legal and accounting advisers to determine the most suitable structure.

Frequently asked questions:

1. Do contracts automatically transfer in a share sale?
Yes, because the company remains the contracting party. However, change-of-control clauses may require consent.

2. Why are asset sales often administratively heavier?
Each asset, contract and licence may require separate transfer documentation and third-party consent.

3. Does TUPE apply in a share sale?
Generally, no, because the employer does not change.

4. Can a buyer avoid all liabilities in an asset purchase?
Not entirely. Certain liabilities (such as TUPE-related obligations) may transfer automatically, and commercial risk may still arise if contracts are not properly assigned.

5. Which structure is more tax efficient?
It depends on the company’s tax position, shareholder circumstances and asset composition. Professional tax advice is essential.

6. Are regulatory approvals structure-dependent?
Yes. Certain licences may not transfer in an asset sale and may require fresh applications.

7. What causes most transaction delays?
Common causes include incomplete due diligence responses, unassigned contracts, unresolved tax issues and protracted warranty negotiations.

Speak to our corporate solicitors:

Careful structuring at the outset can significantly reduce legal exposure, protect value and improve deal certainty for both buyers and sellers.

If you would like advice on structuring a proposed acquisition or exit, our corporate team can guide you through the legal, commercial and tax considerations to ensure your transaction is properly protected from the outset.