Risk & Remedy: Acquisition Structures – Asset v Share Purchase

When you buy a business, the deal is not just about price.The way you structure the acquisition – whether by buying the company’s sharesor its individual assets – can make or break the success of the deal. Get itwrong, and you could inherit tax headaches, regulatory issues, or hiddenliabilities that wipe out the value you thought you were buying.

The Risk in Plain English

Think of it like buying a house. You can either:

1.     Buy the whole house “as is” (share purchase) –leaky pipes, noisy neighbours, asbestos roof and all; or

2.     Pick and choose only the rooms and furniture youwant (asset purchase), leaving behind the rest.

In business, the “leaky pipes” are unknown liabilities –things like unpaid employee entitlements, unresolved tax disputes, or hiddenllitigation Depending on the structure, you may or may not inherit them.

Share Purchase: The Whole Package

When you buy the shares of a company, you step into theowner’s shoes. You get:

1.     All assets: goodwill, contracts, staff, IP, licences, stock, equipment.

2.     All liabilities: debts, claims, disputes,warranties, tax exposures – known or unknown.

This can be efficient. Customer contracts, supplierarrangements, and licences usually stay in place automatically, so there’s lessdisruption to the business. But it’s also riskier: you inherit the entirehistory of the company.

Example: A buyer who acquired shares in a constructioncompany later discovered the business was under investigation for safetybreaches. Even though the breaches happened before the sale, the new owner wasliable.

Asset Purchase: Pick and Choose

An asset deal lets you cherry-pick what you want: specificequipment, stock, contracts, goodwill, and even employees. You leave behindliabilities you don’t agree to take.

That said, in practice:

·        Each asset must be legally transferred.

·        Customer and supplier contracts may need consent,which is not received.

·        Leases, licences, and permits may not betransferable at all.

Still, it’s often the safer path when there’s concern aboutunknown liabilities, or where the buyer only wants part of the business.

Key Factors Affecting the Choice

Unknown liabilities: If there’s any doubt about hiddenproblems, an asset deal provides more control.

Tax and duty: Stamp duty and capital gains tax outcomes candiffer dramatically depending on whether shares or assets are sold. A sharesale may be more tax-efficient for the seller, while an asset sale may bebetter for the buyer.

Consents and approvals: Some licences (e.g. financialservices, childcare, health) may not transfer with assets, making a share dealthe only workable option.

Debt and security arrangements: If the business has bankfacilities, security interests, or guarantees, these need to be addressed.Sometimes it’s easier to sell shares than unwind secured assets.

Partial sales: Selling just part of a business (a singledivision, brand, or asset group) generally requires an asset deal.

Practicality and speed: Share sales can be morestraightforward and quicker, especially where the business has multiple sites,complex contracts, or a large workforce.

Remedy: How to Protect Yourself

Do thorough due diligence: Investigate financials,contracts, HR issues, licences, and litigation risks before choosing astructure.

Model the tax and duty outcomes: What works best for theseller may not work for the buyer. A side-by-side analysis is critical.

Negotiate warranties and indemnities: Even in a share deal,the seller can be made to stand behind certain risks.

Plan the transition: For asset sales, map out whichcontracts and approvals require consent well before completion.

Get specialist advice early: The right structure is notone-size-fits-all. It depends on your goals, the industry, and the specificbusiness you’re buying.

Final Word

The way you structure an acquisition can protect yourinvestment – or expose you to liabilities that destroy value. A share purchasemay seem simpler, but it could come with baggage. An asset purchase offers controlbut can create extra red tape. Every deal is different.

Before signing anything, get clear legal advice on thestructure that safeguards your interests.

Book a consultation with Joe

If any of these issues sound familiar, the best next step isto have a proper conversation. Joe Kafrouni regularly helps business ownersunderstand their risks and put practical solutions in place. You can book aconsultation with him to discuss your situation and see how he may be able tohelp.

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