Share Purchase
In this case, the shares in the company are sold by the seller to the buyer. For a seller, a share sale is attractive as the deal is effectively inclusive of all assets and liabilities and current tax legislation provides preferential tax treatment through Entrepreneurs’ relief.
However, with share sales the buyer inherits all the liabilities in addition to the assets, together with the history of the business and so a share deal when buying an existing business can be quite risky for a buyer. In mitigation, the buyer will normally carry out an extensive due diligence exercise, and protection can be afforded through warranties and indemnities in the sale and purchase agreement.
Asset Purchase
In this case, the buyer selects the asset it wants and can choose to leave the liabilities behind, leaving the seller to clear them from sales proceeds. In the case of a corporate sale of assets, the company must then be liquidated to place the sales proceeds in the hands of the corporate owners. Consequently, there is less risk for a buyer in the case of an asset's purchase, as the asset's history is not transferred to the buyer.
A drawback with asset purchases is the requirement to novate contracts to the buyer which often requires third party consent.