BUYING A COMPANY IN THE UNITED KINGDOM
Despite Brexit, the UK remains an attractive place to do business. This is owing to its steadfast entrepreneurial culture, its economy and London’s preeminence as a financial centre.
WHAT ARE THE TWO DIFFERENT PROCEDURES FOR BUYING A BUSINESS?
There are two different ways to buy a business in the UK: share purchase or asset purchase.
The main difference between these two procedures is that a share purchase involves a takeover of the company including its liabilities (tax risks, off-balance sheet commitments, etc.), whereas an asset purchase involves only those items expressly included in the contract.
Therefore, in an asset purchase, the buyer can negotiate any guarantees and commitments proposed by the seller in advance. This provides the buyer with an opportunity to limit the risks presented by an uncertain economic context.
In practice, share and asset purchases remain similar. However, it should be noted that the latter does not legally constitute the acquisition of the company itself.
WHICH PROCEDURE TO CHOOSE?
The choice of one or the other procedure can be explained by fiscal or practical reasons.
For a share purchase, there is an obligation to pay registration fees at a rate of 0.5% of the purchase price of the shares, usually payable by the purchaser.
For an asset purchase, taxation depends on the individual items transferred. It is, therefore, possible to negotiate to find the best tax compromise.
Finally, it should be noted that VAT is not due on a share transfer but is due on an asset transfer.
In the context of an activity subject to specific regulations, a transfer of assets will require the application of new authorisations - which is not the case for a transfer of shares.
In addition, a share purchase allows the company's trade name to be kept and used without having to negotiate its takeover.
The choice of either procedure (share purchase vs. asset purchase) has further consequences for the purpose of the sale and the purchase method.
WHAT ARE THE CONSEQUENCES ON THE OBJECT OF THE SALE AND ON THE BUYING PROCEDURE?
OBJECT OF THE SALE
In the case of a transfer of assets :
-The buyer can choose which contracts between the company and third parties he is prepared to take over. The buyer will want to assess this from a commercial perspective.
- Debts and Receivables: the buyer can negotiate which debts and receivables he is willing to take over.
In the case of a share transfer, the buyer can request that an indemnity clause be included in the share purchase agreement. The clause may be invoked to cover potential losses of tax liabilities.
In case of an asset transfer, liabilities remain with the seller and only assets change ownership.
Please contact us if you would like to find out more about buying a business in the UK and which procedure is best suited to your needs.
+44 (0)203 556 4855