Asset sale vs share sale, explained commercially

In a share sale the buyer buys the company itself, and gets everything the company owns, owes and has ever done. In an asset sale the buyer buys selected things out of the company — the customer list, the equipment, the stock, the name — and leaves the company, and whatever else is inside it, with you. That single difference is why a buyer normally pushes for an asset sale and a seller normally pushes for a share sale, and why the same headline price can leave two very different amounts in your hand.

Before anything else: the tax treatment of the two structures is usually the single biggest difference between them, and it is not what this page is about. That question belongs with your accountant, on your actual numbers, before you agree a structure — not with a web page. What follows is the commercial half: what moves, what stays, who wants which, and where the money ends up.

The two structures, in plain terms

Almost every private company sale in the UK is done one of two ways, and the choice is made early — usually at the heads of terms stage, long before the lawyers are drafting anything. Once it is written down there it rarely changes, because both sides have priced the deal around it.

A share sale: the buyer takes the company

In a share sale the thing being bought is the company itself — the shares in it. The company carries on exactly as it was the day before. Same registration number, same bank account, same contracts, same staff, same insurance policies, same VAT registration, same trading history. Nothing inside the company has moved, because the company has not moved. Only the names on the share register have changed.

The consequence people underestimate is the word everything. The buyer inherits the whole company as a going concern, and a company is a container that has been filling up for as long as it has traded. The good stuff is in there: the goodwill, the repeat customers, the accreditations, the track record that wins tenders, the supplier terms negotiated over a decade. So is everything else: the loan, the overdraft, the lease with four years to run, the employment dispute that was settled informally and never quite closed, the customer who was invoiced twice in 2023, the VAT position, the equipment bought on finance, the old subsidiary nobody has looked at since. If it happened inside that company, the buyer now owns the consequences of it.

That is why due diligence on a share sale is longer and harder than on an asset sale. The buyer is not inspecting a list of items; they are inspecting a history.

An asset sale: the buyer takes a shopping list

In an asset sale the company stays yours. What changes hands is a schedule of specific things the buyer has decided they want: the goodwill and the trading name, the customer relationships, the plant and machinery, the vehicles, the stock, the website and domain, the intellectual property, the work in progress. Each item is listed. If it is not on the list, it has not been sold.

Everything else stays where it was — inside your company, which still exists, still has your name on the register at Companies House, and still owes whatever it owed. The buyer typically puts the purchased assets into a company of their own, often one incorporated specifically for the deal, and starts trading with them from completion.

This is why an asset sale is sometimes described as a business sale rather than a company sale. The business moves. The company does not.

The one-line version

A share sale sells the container and everything in it. An asset sale sells selected contents and keeps the container. Everything else in this guide follows from that, including the money.

One thing to be clear about before going further: which structure is available to you, what will actually transfer in either case, and what any of it does to your tax position are questions for a solicitor and an accountant on your specific facts. This page describes how these deals are put together commercially and what tends to happen to the money. It is not telling you what the position is, because the position depends on documents nobody reading this has seen.

What comes across, and what you are left holding

The table below is the practical heart of the difference. Read the right-hand column as the one that generates the work, because in an asset sale each line is a separate exercise rather than an automatic consequence of the shares moving.

The two lines that decide most deals

Look at the customer contracts row and the lease row again. In a share sale they are non-events, because nothing has moved. In an asset sale they are the critical path, and they involve people who are not party to your deal and have no particular reason to hurry.

Commercial contracts frequently contain a clause about assignment or transfer — what has to happen before the contract can move to someone else, and whose agreement is needed. Leases commonly contain something similar. The exact wording differs in every document, and reading them is a job for your solicitor, not for you and not for a web page. But the commercial effect is consistent, and it is this: a third party who has to agree to something is a third party who can say no, say later, or say yes at a price.

That is how a structure choice becomes a structure constraint. If a business runs on twelve framework agreements and the biggest customer has a policy of treating any transfer as a trigger for a fresh tender, then an asset sale is not really a choice; it is a way of handing that customer a decision they did not previously have to make. Businesses in that position tend to sell as share sales whatever the buyer would have preferred, because a share sale leaves the counterparty with nothing to decide unless their contract specifically says a change of ownership gives them a say.

The reverse is also true. A business whose revenue comes from thousands of small, terminable, no-contract customers — a retailer, a local service business, an online shop — has almost nothing to get consent for. Its customers do not have contracts to assign. In that case an asset sale costs the buyer very little in transfer friction, and they will push for one.

Why the buyer wants the assets and you want the shares

This is not a matter of preference or of one side being awkward. Both positions follow directly from what each structure does with risk.

The buyer is buying a future, not a past

A buyer wants the customers, the staff, the equipment and the earning power. They do not want the 2021 invoice dispute, the payroll error nobody spotted, the undertaking somebody once gave a supplier, or the claim that has not been made yet. An asset sale gives them a way of taking the first list without the second: they write down what they are buying, and everything else stays behind by construction.

In a share sale they cannot do that. The company comes as one item, history attached, and the only protection available is contractual: warranties, indemnities, disclosure, a retention held back from the price. All of those are promises about the past rather than a clean break from it. A promise is worth what the person giving it is worth in two years, which is a genuinely different thing from a liability that never moved.

You are trying to stop owning the problem

Your interest runs the other way. The point of selling is usually to be finished. A share sale is the cleaner exit in that sense: the company goes, and everything inside it goes with it, subject to whatever you have promised in the warranties. An asset sale leaves you owning a company that still has the loan, the creditors, the old disputes and the obligation to be wound up properly — and leaves you doing that work after the buyer has already gone.

There is also a control point that gets missed. In an asset sale the buyer chooses the shopping list. That means they can decline the slow-moving stock, the van that needs replacing, the lease on the second unit you no longer use, and the customer that has been late paying for a year. Everything they decline is still yours, and you now have to sell it, terminate it or write it off yourself — usually at less than the value it carried in the deal discussion.

How the argument actually gets settled

In practice it is settled by leverage and by friction, in roughly that order:

• How much else the buyer has to choose from. A buyer with three similar targets can insist on an asset sale. A buyer who has spent four months on the only business in the country that does what yours does has less room.
• How hard the transfer would be. The more contracts, leases, licences and accreditations a business runs on, the more an asset sale costs the buyer in time, consent risk and lost continuity. At some point a share sale is simply cheaper for them too.
• Whether the history is clean. If diligence turns up something specific — an unresolved claim, an unclear ownership question over a key asset — the buyer will move to an asset sale to step around it, and will be right to.
• What the price reflects. A structure is negotiable against money like anything else. A buyer who really wants an asset sale can pay for one, and a seller who really wants a share sale can accept a lower headline number, a longer retention or a broader indemnity to get it.

The mistake is treating the structure as a technical detail to be delegated. It is a commercial term, it is worth real money in both directions, and it should be argued in the heads of terms alongside the price rather than discovered afterwards in a draft contract.

Cash, debt and the number you are actually agreeing

Both structures start from the same place: a view of what the business is worth as a trading operation, independent of how it happens to be financed. That figure is what people mean when they say the business is worth, say, nine hundred thousand pounds. It is not the amount that reaches your bank account, and in the two structures it fails to reach your bank account in different ways.

In a share sale, the price is adjusted for what is in the company

Because the buyer is taking the company as it stands, they take its cash and its debts too. Deals are therefore usually negotiated on a cash-free, debt-free basis: agree the value of the trading business, then adjust for the balance sheet on the day.

Equity price = headline business value + cash in the company − debt in the company ± working capital adjustment

The working capital adjustment is the part that surprises people. The buyer is paying for a business that can keep trading from day one, which means it needs its normal level of stock, debtors and creditors in place. So the parties agree a normal level — often an average of the last twelve months — and the price moves by the difference between that target and what is actually there at completion. Run the debtors down and spend the cash before completion and you have not gained anything; you have simply moved the same money from one column to another and triggered an adjustment.

In an asset sale, the price is paid to the company, not to you

This is the structural fact that does most of the damage to seller expectations. The buyer is buying assets from the company, so the buyer pays the company. The money lands in the company bank account, and the company is still the thing you own. Getting it from there to you personally is a separate exercise, on a separate timetable, with its own consequences — and it is exactly the exercise your accountant needs to price before you agree the structure, not after.

Meanwhile the company still owes what it owed. The lender will usually want repaying out of the proceeds, often on the day of completion and frequently with an early repayment cost attached. The trade creditors still have to be paid. The accruals still have to be settled. Whatever the buyer declined still has to be dealt with.

Why the headline number is not a comparison

Put those two paragraphs together and the conclusion is unavoidable: the same headline figure means different things in the two structures, so comparing two offers by their headline is comparing nothing at all. The only honest comparison is net cash to you, on a date, after everything that has to be settled out of it. That is what the next section does.

The same business, the same price, both ways

Everything below is illustrative. The figures are invented to make the arithmetic legible and are not a market rate, a typical deal or a suggestion of what yours would look like. Re-key it with your own numbers; that is the only version that means anything.

Take a trading company both sides have agreed is worth £900,000 as a business. Its balance sheet on the day looks like this:

There is also one loose end: a disputed invoice from a former subcontractor, unresolved for two years, which nobody has provided for.

Route one: sold as a share sale at £900,000

The buyer takes the company, so the price is adjusted for the cash and debt inside it. The parties have set a normal working capital target of £105,000. Actual working capital at completion is £140,000 + £60,000 − £95,000 − £25,000 = £80,000, so it is £25,000 light and the price comes down by that amount. The buyer also holds back 10% of the adjusted price for eighteen months against any warranty claim.

The disputed subcontractor invoice went with the company. If it comes back, it is the buyer's problem commercially and yours contractually, because they will look at the warranties and the indemnities and, if it is within the eighteen months, at the retention they are still holding.

Route two: sold as an asset sale at £900,000

Same business, same headline. The buyer takes the goodwill, the customer relationships, the name, the stock and the equipment. They do not take the cash, the debtors, the loan, the creditors or the dispute. The £900,000 is paid to the company.

Then the dispute settles at £40,000, because it never left: £828,500 − £40,000 = £788,500.

Reading the two columns together

On the face of it, £815,000 against £828,500 looks like the asset sale won by £13,500 — and then the old dispute lands and it loses by £26,500. Neither of those is the useful observation. These four are:

• The money arrives at different times. The share sale pays £733,500 on the day and the rest after eighteen months. The asset sale pays £900,000 on the day but then spends months paying creditors, chasing £140,000 of debtors and collecting only £132,000 of it, and cannot be finished until the last obligation is dealt with.
• The asset sale figure is not yours yet. £828,500 is sitting inside a company you still own. What it costs to get it out, and over what period, is the question for your accountant — and it is often the largest single item in the whole comparison.
• The risk sits in different places. In the share sale the loose end travelled with the company and you have capped your exposure to it through the contract. In the asset sale it stayed with you, uncapped, for as long as it can still be brought.
• The £13,500 gap is noise. Change the working capital target by £20,000, the early repayment cost by £2,000, or the debtor write-off by £10,000 and the ranking flips. Anyone who tells you one structure is worth more than the other in general is not looking at a balance sheet.

The discipline that follows: build this table for your own business, at your own numbers, for each structure on the table, before you sign heads of terms. It takes an afternoon and it is the only way to know what you are comparing. The wider sale process has plenty of places to lose money; this is the one where the loss is decided in a sentence and discovered a year later.

The company you are left holding

Sellers picture an asset sale ending at completion. It does not. Completion is the point at which you stop running a business and start running a wind-down, and the second job is duller, slower and entirely yours.

What the leftover company still has to do

• Collect what it is owed. The debtors stayed with you, and they are now being chased by a company the customer no longer trades with. Collection rates fall once the relationship has gone, which is exactly why the illustration above collected £132,000 of £140,000 rather than all of it.
• Pay what it owes. Suppliers, the lender, the accruals, anything the buyer declined. Some of it is not yet known on completion day.
• Deal with what the buyer did not want. Obsolete stock, an old van, a lease on a unit nobody is using, a software subscription with fourteen months to run. Every one of those is a small piece of work with a small cost attached.
• Keep filing. The company is still a company until it stops being one. Accounts, returns, the accountant's fee for the period, the final set of figures.
• Stay coverable. Claims can arrive after trading stops. Run-off cover on the old policies is the usual answer and it is not free, which is why it appeared as a line in the arithmetic.
• Close properly. Winding up a solvent company is a defined process with its own timetable and cost, and it has to be done correctly rather than by abandoning the company. Your accountant and solicitor run this part; the thing to take from it here is that it takes months, not days, and that it has a price which belongs in your comparison.

The tail nobody budgets for

Two costs consistently get left out of seller arithmetic. The first is time — yours. The wind-down is unpaid work, months of it, at exactly the point you expected to be finished, and it is worth putting a number on it even if that number never appears in a contract. The second is the open-ended risk: in an asset sale the historic liabilities did not go anywhere, so the exposure runs until the last thing that can be brought has been brought, which may be long after the company has been closed.

Set against that, a share sale ends more cleanly but not instantly. The warranties survive completion, the retention is held for a defined period, and the indemnities can run longer still. The difference is that all three are written down: you know the cap, you know the period, you know what has been disclosed. That certainty is a real commercial asset and it is a large part of why sellers pay for a share sale by accepting a lower headline number.

The order that avoids the expensive discovery

1. Get a defensible value first. Structure is an argument about how a number is delivered; you cannot have it before you have the number. The free business valuation calculator gives you a range from your own figures, in your browser.
2. Ask your solicitor what is actually transferable. The leases, the key customer contracts, the licences and accreditations. If the answer is that an asset sale would put your three biggest customers in front of a decision, you have learned the structure question was already settled.
3. Ask your accountant to price both structures. On your numbers, with the route the money takes to reach you personally in each case. This is the biggest number in the comparison and it is the one this page has deliberately not touched.
4. Build the net-cash table. Both structures, same headline, everything deducted, with the dates the money actually arrives.
5. Write the structure into the heads of terms. Alongside the price, not after it. Renegotiating a structure once drafting has started costs money and goodwill, and by then the other side has priced their position too.

Arithmetic and general information only — not financial, tax, legal or investment advice. Your own figures, and your own accountant, decide what any of this means for you.

Frequently asked questions

What is the difference between an asset sale and a share sale?

In a share sale the buyer buys the company itself and gets everything inside it, including its contracts, its staff, its debts and its history. In an asset sale the buyer buys a listed set of things out of the company, such as the goodwill, equipment, stock and customer relationships, and the company and whatever is left in it stays with the seller.

Which is better for tax, an asset sale or a share sale?

This is the biggest single difference between the two structures and it is genuinely a question for your accountant, on your own figures, before you agree anything. It depends on facts a web page cannot know. What to ask them: what each structure does to the money on its way from the buyer to you personally, what the position is for the company as opposed to you as a shareholder in each case, what any reliefs you might qualify for require, and what the timing difference is. Get that answer before you sign heads of terms, because the structure is very hard to change afterwards.

Why do buyers usually prefer an asset sale?

Because it lets them take what they want and leave the rest. A company carries everything it has ever done, including disputes and liabilities that have not surfaced yet, and a buyer cannot separate those from the parts they actually want. An asset sale draws a line around a defined list, so anything not on that list stays with the seller.

Do customer contracts and leases transfer in an asset sale?

Not automatically, and this is what often decides which structure is even possible. Most commercial contracts and leases contain wording about what has to happen before they can be moved to someone else, and a third party who has to agree can refuse, delay or ask for something in return. In a share sale nothing moves, because the company that holds them has not changed, although some contracts have their own conditions about a change of ownership. Your solicitor needs to read the actual documents.

What happens to the company after an asset sale?

It still exists and it is still yours. The sale proceeds are paid to the company rather than to you, so it holds the money while it repays its lender, settles its creditors, collects its debtors and deals with anything the buyer declined to buy. It then has to be closed down properly, which is a defined process with its own timetable and cost. Budget for months of work after completion, and for professional fees through that period.

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