A client interested in buying a business contacted SLB Legal. The buyer was preparing to make an offer but was unclear about how to structure the purchase. The seller did not have a preference and suggested that the purchaser's offer propose either an asset or share sale.

How We Helped

We helped the purchaser first identify their goals and key concerns regarding the business purchase. After a meeting and asking the right questions, it was determined that the purchaser's key goals and concerns included the following:

• The purchaser wanted to acquire all the seller's business assets and business goodwill;
• The purchaser was concerned about post-completion risk, and wanted to minimise their exposure to the unknown or historical liabilities of the business where possible;
• The purchaser wanted to maintain business continuity and revenue, as well as retain as many staff, suppliers and customers as possible; and
• Avoiding sale completion delays and additional costs from transferring multiple leases and key contracts was important to the purchaser.

We explained that a business can generally be purchased in one of two ways:

• an asset sale, where the purchaser entity buys some or all of the business assets and goodwill from the seller entity; or
• a share sale, where the purchaser acquires the shares in the company that owns and operates the business.

We then explained how each option could affect the purchaser's specific objectives:

• Liabilities: In an asset sale, most historical liabilities typically remain with the seller unless the purchaser agrees to take them on. However, in a share sale, all known and unknown liabilities generally remain with the company even though the shares have been sold to a new buyer.
• Leases: Asset sales generally require assignment or replacement of leases. This requires landlord consent, which can result in delay and additional costs. Share sales on the other hand can often allow leases to continue as is.
• Contracts: Asset sales can often require novation of supplier and customer contracts, some of which may not be assignable and could require the other party's agreement. Share sales will often keep existing contracts in place and continuing (subject to change of control conditions).
• Employees: Asset sales require termination and re-employment, with associated risks. Share sales often preserve employee arrangements because there is generally no change to the employer entity.
• Business continuity and revenue: Because of the type of business being sold, an asset sale can carry a risk of operational disruption, potential loss of key relationships and interruption to revenue. A share sale for these particular circumstances was more likely to allow for greater business continuity and less disruption.

By advising on these and other factors based on the purchaser's individual circumstances, we helped the purchaser to determine that a share sale and purchase structure, supported by targeted due diligence and contractual protections, aligned best with the purchaser's goals and concerns.

Outcome

By getting early legal advice on the purchase structure before making the offer, the purchaser was able to make an offer that aligned with their goals. With our ongoing legal support, the purchaser completed the share and business purchase smoothly and with confidence.

If you would like help with a sale or purchase of shares or business, contact SLB Legal today for tailored legal advice and assistance.

For more information about the difference between share and asset business sale, you can also check out our blog article: Asset sale vs share Sale: What's the difference when selling or buying a business? | SLB Legal