Sale of company: share deal or asset deal?
When choosing an equity transaction or sale of assets (business), a number of legal, fiscal and economic motives will play a role. Moreover, this also varies from the perspective of the buyer and the seller.
Below we outline a number of important considerations in this choice.
I. Sale of shares
- The company changes ownership, but continues to exist in its current form.
- All assets (licenses, permits, contracts, ...) will automatically be transferred (except in case of ‘change of control’ clauses), as well as all (contingent) liabilities, obligations and possible future claims.
- The buyer will often conduct a due diligence in order to assess better the risks from the past.
- A good share purchase agreement with comprehensive representations and warranties regarding the past of the company is often a necessity.
- The seller will in principle not be taxed on any capital gains, if they fall within the scope of normal management of a private estate.
- The price paid for the shares is not tax deductible for the buyer.
II. Sale of assets (business)
- In asset transactions the transferee has the possibility to pick just some assets (e.g. machines or just the operational activities and not the real estate) and not the entire company (“cherry picking”).
- The transfer of assets is not automatic and often some formal requirements must be observed in view of opposability towards third parties. This may also lead to additional costs (e.g. registration tax on property).
- The other assets, liabilities, risks and potential claims remain with the seller (no surprises from the past).
- In case of transfer of business, however, the social liabilities are transferred to the buyer (cao 32bis). As a buyer of a business, you can be held liable, together with the seller, for tax and social security debts up to the purchase price, unless the authorities provide a certificate stating that the seller has no social or tax debts.
- The seller will basically pay tax on gains he realized from the sale of a business (offsetting with any tax loss carry forward is possible or spread taxation in case of reinvestment). If, after the transaction, the company that sold the assets would be liquidated (to stream up the sales proceeds), the liquidation tax also plays a role.
- The buyer can depreciate the acquired assets, including goodwill under certain conditions. The buyer has as a tax benefit, albeit spread over time.
- The possible tax disadvantage for the seller and tax advantage for the buyer is usually translated into a higher price for an asset deal compared to a share deal.
Summarized, both forms (asset deal or share deal) have their advantages and disadvantages. Depending on the specific context (e.g. environmental or other risks, non-operating real estate, necessary permits, ...) and negotiation between the seller and buyer there will be chosen for a sale of shares or of assets.