GUEST COLUMN:
Hayley Worsfold
Tax Partner
Menzies
When business owners begin thinking about selling their company, much of the focus naturally falls on valuation. What is the business worth? Who might buy it? How long will the process take?
A common misconception when selling a business is thinking every deal is structured the same. One of the most important discussions to have, early in the process, is should the deal be structured as a share sale or a trade and asset sale?
While both routes can ultimately result in a successful transaction, they can have very different implications for buyers and sellers. The choice can affect tax outcomes, due diligence requirements, deal complexity, ongoing liabilities, and ultimately the value that each party derives from the transaction.
For business owners planning an exit, understanding these differences early can help avoid surprises and ensure that expectations remain aligned throughout the process.
From a seller's perspective, a share sale is often seen as the cleaner option. In a share sale, the buyer acquires the shares of the company and effectively takes ownership of the entire business entity, including its assets, contracts, employees, and liabilities. For many owners, this can provide a relatively straightforward exit, allowing them to transfer ownership of the company in its entirety.
There can also be significant tax advantages. Depending on individual circumstances, sellers may benefit from Business Asset Disposal Relief, reducing the rate of capital gains tax payable on qualifying gains. For shareholders operating through a holding company structure, there may also be opportunities to utilise the Substantial Shareholding Exemption. In some cases, proceeds can be retained within a holding company for future investment opportunities or incorporated into broader wealth planning strategies, such as family investment companies.
However, a share sale is rarely simple from the buyer's perspective. Because the purchaser acquires the entire company, they also inherit its history. Any historical tax issues, legal disputes, contractual obligations or compliance risks become part of the package. As a result, due diligence is typically far more extensive and can significantly lengthen the transaction process.
To mitigate these risks, buyers will often seek a range of warranties and indemnities, particularly around tax matters. Negotiating these protections can become one of the most complex aspects of the deal and is often a key area of discussion between both parties and their advisers.
A trade and asset sale presents a different picture.
Under this structure, the buyer acquires selected assets and activities of the business rather than the company itself. This gives the purchaser greater flexibility to choose precisely what they want to acquire, whether that's customer contracts, intellectual property, stock, equipment, or specific business operations.
For buyers, this can be attractive because it limits exposure to historic liabilities and often reduces risk. Due diligence tends to focus on the assets being acquired rather than the entire corporate history of the business, making the process more targeted and, in many cases, less onerous.
For sellers, however, the picture can be more complicated.
Following a trade and asset sale, the company itself remains in existence and still belongs to the seller. This means that owners are often left with a corporate shell that may need to be liquidated. Depending on the circumstances, this can create additional costs and potentially less favourable tax outcomes, including the possibility of taxation at both company and shareholder level.
There is also the practical reality that the buyer may only wish to acquire part of the business. Sellers can find themselves retaining assets, liabilities, or operational elements that need to be dealt with after completion, creating additional complexity at a time when many are hoping for a clean exit.
Ultimately, while sellers often have preferences, the reality is that buyers will frequently drive the structure of the deal. Their appetite for risk will play a significant role in determining whether a share sale or asset sale is pursued. A buyer concerned about historic liabilities may favour an asset acquisition, while one seeking continuity and simplicity may be more comfortable acquiring shares.
Importantly, these discussions are not always settled at the outset. It is not uncommon for the preferred structure to evolve during the due diligence process as new information emerges and risks are assessed.
That is why early planning and professional advice are so important.
The decision between a share or trade sale should never be viewed purely through a tax lens, nor purely through a commercial lens. It is a strategic decision that affects every aspect of a transaction. Understanding the advantages, disadvantages and practical implications of both routes allows business owners to enter negotiations with greater confidence and ultimately achieve an outcome that aligns with their personal and commercial objectives.
When it comes to selling a business, value matters. But how the deal is structured can be just as important as the price itself.
