Goodwill & Assets vs Share Sale

| 4 min read

Structuring a deal when selling business can be important for a variety of reasons; from helping you to get the most money from your corporation, to attracting the most buyers. It’s important to keep in mind that each organization is different and that the process can sometimes differ, too.

Those who are planning to tradetheir limited company may want to take a closer look into the two main ways that they can structure their deals – goodwill & assets, and a share sale. Each has their own benefits, which is why having a good understanding of them both can be so important for essentially anyone with this type of firm.

What is a goodwill & assets sale?

To put it simply, this type of transaction includes all tangible, as well as “intangible”,possessions. For those who are confused, an intangible asset could be your trading name, contracts, etc., and this is considered the goodwill of the business.

Often, people who are interested in purchasing your company will base their offer on both the assets that they want and the amount that they think the goodwill is worth. After it goes through, it will be up to you to take care of any resources and liabilities that the buyer didn’t take on.

Pros

  • Less warranties and indemnities when finalizing the transaction
  • You get to keep any possessions that aren’t included in the final deal
  • They’re often quicker
  • Sellers will often have more power during negotiations

Cons

  • When you agree to this type of deal, the liabilities are likely to stay with you
  • You may need to get consent from a third party (if you lease the property, you may need your landlord’s permission)
  • Tax calculations can become quite complicated in goodwill & assets sales, and they could even be taxed twice
  • Certain possessions (and the investments made in them) can be lost; such as permits, licenses and personal data, since you might not be able to transfer them over

What is a share sale?

With these types of deals, the buyer purchases shares of the business, and this can be a percentage or all of the share capital. Because of this, they basically become the owner of everything owned by the company, typically meaning that all the resources will remain with the firm.

Pros

  • Share sales tend to have less risk for staff, clients, and suppliers
  • You could claim for Entrepreneurs Relief and get an even better return
  • They tend to be the simplest and cleanest deal for a seller, and aside from any deals they may make to provide extra support after the transaction, they’re free
  • Due to rollover and Entrepreneurs Relief, tax liabilities can be sometimes be reduced

Cons

  • The firm will keep the same liabilities as before, so you may need to provide warranties and indemnities to protect the buyer
  • You might have to provide personal guarantees which could lead to personal liability (to avoid this, it’s often wise to consult your solicitor as the trade is going through)
  • Share sales tend to take longer than goodwill & asset ones, simply because buyers are unlikely to want to rush into buying when there could be potential issues
  • There can be a lot more work involved with these types of transactions, which is why hiring an expert may not be a bad idea

Which one should you choose?

After seeing a few of the benefits and disadvantages of both of these types of deal structures, you should have a better idea of what they have to offer, and therefore which one will be best suited to your needs. Often, the decision will heavily rely on your business and your own personal preferences – which is why having the knowledge of what they could mean for the transaction (both the process and outcome) can be vital.

Take the time to consider which structure will be most beneficial for you, as rushing this decision could cause extra complications later on if you don’t pick the right one.

Getting the help of professionals

If you’re hoping to get the most out of the trade, simplify the process, and much more, it might be worthwhile to hire the assistance of a business transfer agent. In most instances, they’ll be able to offer a variety of services that can help throughout the process, whether it be dealing with enquiries or helping you to negotiate for the right price.

Please note that the information provided on this page:

  • Does not provide a complete or authoritative statement of the law;
  • Does not constitute legal advice by Net Lawman;
  • Does not create a contractual relationship;
  • Does not form part of any other advice, whether paid or free.
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