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Difference Between an Asset and Share Purchase

What’s the difference between an asset and share purchase? Which is right for you as a buyer or seller of a pharmacy?

When you’re buying a pharmacy or dental practice, you’ll encounter lots of new terms that may be confusing. Alternatively, if you’re thinking of selling you’ll also have to get to grips with much of the same terminology - though a dedicated selling agent such as the service we provide can help navigate this for you.

One of the first issues for both buyers and sellers to grapple with is the concept of asset purchases vs share purchases. 

Share purchases involve selling the entirety of a limited company, meaning all assets, liabilities and obligations whether the seller is aware of them or not. When the sale is finalised, the buyer becomes the majority shareholder and is thereby responsible for the entire company. 

Asset sales involve selling the assets of the business, whether you have a limited company or not - you don’t sell your shares or your company, you sell the other parts of the business such as the premises, equipment, stock etc. Asset sales are more limited for a seller because the buyer can stipulate specific assets they want to buy rather than agreeing to buy everything. 

Deciding on the right purchase type for you likely changes whether you’re a buyer or a seller. Let’s go through the advantages and disadvantages of each type so you can make a more informed decision. 

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Asset purchases

An asset purchase sees the purchaser buying an agreed ‘bundle’ of assets from your company. Whether your pharmacy is part of a larger LTD business or not, an asset sale ignores shares entirely and focuses on the tangible assets of the business. 

Asset sales mean that the buyer ordinarily doesn’t take on any hidden liabilities. The sales agreement outlines the assets and liabilities they are willing to purchase and anything beyond that is held with the seller. 

For a buyer

For buyers, asset purchases are often the preferred route because they require less due diligence. This legal process is made far easier when you’re pursuing an asset purchase as the solicitors don’t have to comb for hidden liabilities, they only need to assess the assets you’re planning to buy. Funding providers such as banks and other lenders also prefer asset purchases because they carry less intrinsic risk. By absolving yourself of any responsibility for liabilities you might not know about, the lender’s risk of investing in you is lessened. 

For a seller

Asset purchases may seem like they’re preferable solely to buyers, but this isn’t always the case. While you as the seller will remain responsible for liabilities incurred before the sale and cannot just ‘sell and walk away’, you do get the benefit of being able to outline assets you do not want to include in the sale. This means, if you have large premises and want to sell the pharmacy side of it but keep a retail unit, you can outline it in the asset purchase agreement and keep it as a source of income. In a share purchase, you’d have to sell your entire LTD business that owns the whole building. 

Share purchases

Share purchases involve buying the entirety of a limited business. This includes all of its assets, liabilities and obligations - even those you are not aware of. In the medical sector, this can be a challenge due to the threat of patient disputes and historic legal cases. However, share sales do offer the most ‘complete’ route to buying a business in that you become the owner of the whole company and everything it includes. 

For a buyer

Buying through a share purchase means you’ll take on the shares of the existing LTD business and then become the majority owner. You’ll be purchasing the entirety of the business which includes assets, liabilities and obligations - though you can help mitigate the impact of these via ‘warranties’ from the seller. 

These warranties are included in the sales agreement and are statements of fact about things such as outstanding finances, legal history etc. The seller must provide these and you need to scrutinise them to ensure you’re happy with what the purchase includes. 

The level of due diligence you must undertake is far higher in a share purchase as the lender and your own solicitors will want to comb through the full business to help protect their investment and your interests.

For a seller

Selling your limited business through a share purchase is a reassuring process because it absolves you of any responsibilities following the sale. Once you have provided warranties and disclosures to the seller and they have accepted, you’ll be able to ‘walk away’. Because the share purchase is often deemed a change in directorship as opposed to the formation of a new entity, any NHS contracts or changes may be more straightforward to arrange. 

The sale of your shares also means you might be eligible for business asset disposal relief (once called entrepreneur’s relief), which provides a preferable tax rate for your capital gain’s tax following the sale. This relief is also available for asset purchases but has more strict regulations and conditions. 

Should you choose an asset or share purchase? 

There are advantages and disadvantages to both forms of sale - making it difficult to advise on one particular route. Each buying or selling journey is different and carries different motivations. If you are, for example, looking to retire and have no interest in continuing in business, a share sale might be a preferable route. As a buyer, you may want to pursue asset purchases as they involve less due diligence and provide less risk in terms of obligations. 

The best way to navigate your journey is to work with Rangewell. If you’re looking to buy, we’ll help guide you through the process, identify the right businesses to suit your budget and needs and also advise on complexities such as asset/share purchases. As a seller, you can leverage our dedicated selling agent who will help you understand the market and your opportunities so you can decide on the correct type of sale to suit your end goal. 

Whichever side of the argument you’re on, contact Rangewell today to get started and we’ll help with everything from general advice through to specific funding applications. 

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