Share purchase or asset purchase: what’s the difference?

Last updated: 1 December 2025.

There are two ways a buyer can acquire a business: either by way of a share purchase or an asset purchase. While both structures can broadly achieve the same commercial objective, there are advantages and disadvantages to each, as well as fundamental differences in legal effect and tax treatment.

Generally speaking:

• an asset purchase involves the buyer acquiring selected assets and rights and, in some cases, assuming responsibility for certain liabilities relating to the target business; and
• a share purchase involves the buyer acquiring the shares in the company (normally the entire issued share capital) from the company’s shareholders.

What is an asset purchase?

In an asset purchase transaction, the buyer takes over the target’s business by purchasing a collection of specified assets and rights and sometimes assuming responsibility for certain liabilities, which together comprise the target business. 

The types of assets (both tangible and intangible) which a buyer commonly purchases include, for example, but not limited to, the business premises, lease of the premise (if leased), the benefit of business contracts, intellectual property rights (signage and telephone numbers etc.), plant and machinery, goodwill and stock. 

The buyer and seller will negotiate precisely which assets the buyer will acquire from the business upon completion. The assets which are not agreed to be purchased by the buyer under the asset purchase agreement will remain with the seller. 

What is a share purchase?

A share purchase involves purchasing the shares of the company from the shareholders. A limited company has its own ‘legal personality’, separate from that of its owners. Therefore, the company as an entity owns its business, assets, obligations, liabilities and rights independently. A buyer purchasing the shares of a company essentially acquires everything owned by that company (including the liabilities). The only assets which change hands are the shares.

The principal document involved in the sale of shares is a share purchase agreement, which will set out the terms upon which the buyer shall purchase the shares. Share purchase agreements can often be quite lengthy based on the complexity of the business, and if the consideration being paid for the business is particularly high or paid over a deferred period of time. The reason is that selling the shares means the buyer becomes the owner of the company. All liabilities are also theirs to deal with.

What’s the difference?

The most significant difference between a share purchase and asset purchase is that in an asset purchase, the buyer has the ability to control and pick which assets are being purchased, allowing the buyer to choose only the best assets and leave behind any liabilities. In contrast, when buying the shares of a company, the company’s separate legal personality means that the buyer has no control over what is obtained and will need to carry out legal due diligence to ascertain all the assets and liabilities.

The flexibility of an asset deal means that this structure is often favoured by buyers and sellers, especially where a business has significant liabilities, which can be left behind. However, there are some other key advantages/disadvantages you should consider. 

Additional considerations when choosing deal structure

An asset purchase allows the buyer to transfer only selected assets and liabilities, while a share purchase involves acquiring the whole company, including its history and obligations. The right structure often turns on commercial risk, tax efficiency, deal certainty, and the parties’ negotiating positions. Factors such as legacy liabilities, contract transfer requirements, customer continuity, and the speed at which the transaction needs to be completed often determine which option is most suitable.

1. Control over what’s transferred.

In an asset purchase, the parties are able to control what is being transferred, meaning the buyer can pick the assets or liabilities it wants to acquire. In a share purchase, the buyer does not have this luxury as the company is the owner of all the assets.

2. Shareholder involvement – who are the sellers?

In a share purchase, a buyer will usually want to acquire the entire issued share capital of the target company and must obtain approval from each selling shareholder. If any of the shareholders are untraceable or unwilling to participate in the transaction, the deal is unlikely to proceed. In an asset sale, the company that owns the assets will conclude the sale (subject to director approval), and the individual shareholders are not required (unless there is a shareholders’ agreement).

3. Structural complexity. 

A share purchase can be the simpler option as the only asset transferring is the share capital of the target company. Therefore, in a share purchase:

• it’s not necessary to identify each asset, right or liability of the target business;
• there’s no need to deal with the specific transfer formalities for different categories of assets and rights (for example, obtaining third-party consent to a change of control or novating contracts);
• the target company’s contractual and licensing arrangements are largely undisturbed by the sale; and
• in an asset sale the seller is the company acting by its directors.

4. Due diligence

Due diligence is the information gathering process carried out by a prospective buyer to find out as much information as possible about the target company early in the transaction negotiations. The purpose of due diligence is for the buyer to investigate the assets, liabilities, trading performance and finances of the target company. Through this process, the buyer should aim to gain a complete picture of the target company and its critical success factors, strengths and weaknesses. The due diligence process is far longer and more intrusive in a share purchase, as the buyer will inherit all the company’s liabilities (past and present)

There are commonly three types of due diligence:

• Commercial – this is carried out by the buyer to decide whether or not to acquire the target company;
   
• Financial – the buyer’s accountants should then carry out a financial investigation into the target company to make sure that the proposed price is accurate and reflects its true value; and
   
• Legal – after the buyer is satisfied on the first two points, then the buyer’s solicitors will raise various questions of the seller’s solicitors.

Legal due diligence will often involve a lengthy questionnaire from the buyer’s solicitor requesting information from the seller. The focus of legal due diligence will depend on the nature of the company being acquired. For example, if the target company is a property company, the main priority will be to carry out a full investigation of title on its key properties. For a software company, the focus will often be on intellectual property rights. The buyer’s solicitor will usually then prepare a legal due diligence report for the buyer, highlighting any potential legal issues. 

Due diligence is an essential preliminary to ensure contractual protection and can help identify the level and areas of protection needed as well as any risks that the buyer should avoid completely. At any point during the due diligence process something could be uncovered, the nature of which means that the buyer decides not to proceed with the purchase, seeks a reduction in the price, or at the very least that some specific protection is sought in the main agreement.

The purpose of due diligence is to either provide the buyer with the comfort that the target company is clean and issue-free or, to the extent that there are issues, that the buyer knows about these and the relevant protections can be built into the agreement or a price reduction sought. Effectively, the due diligence process helps the buyer decide whether it wants to proceed with the acquisition and, if so, at what price and on what terms.

5. Current market practice in business sales

Warranty and indemnity (W&I) insurance is increasingly common in business sales, especially for share purchases, offering protection against unknown liabilities and giving sellers greater certainty. It can also streamline negotiations. Earn-outs and deferred consideration are now widely used to bridge valuation gaps or tie part of the price to future performance. Selecting the right structure depends on commercial dynamics, tax implications, and the required speed of completion.

6. Employees

In an asset sale you must adhere to the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)

TUPE applies to an asset purchases but does not apply to share purchases. Where TUPE applies, the employment rights of the employees of the target’s business are protected and obligations are imposed on the buyer and the seller. Dismissals that are made because of a TUPE transfer are likely to be automatically unfair, and there are financial sanctions available to employees if the buyer and/or the seller fails to comply with their TUPE obligations. 

Conversely, in a share purchase, the employees remain contracted with the company, and therefore there is no transfer of employment rights or TUPE to deal with. The buyer can then proceed with redundancies and staff restructuring as owner of the company. 

7. Tax implications.

Tax treatment differs significantly depending on whether a transaction is structured as an asset purchase or a share purchase.

In an asset purchase, the selling company is typically liable for corporation tax on any gain arising from the sale of its assets. If shareholders later extract the proceeds from the company — for example through dividends or distribution — this may trigger an additional tax charge at shareholder level, potentially resulting in a form of double taxation.

By contrast, in a share purchase, the sale proceeds are paid directly to the shareholders rather than to the company itself. This is usually treated as a disposal of shares for Capital Gains Tax (CGT) purposes. Subject to qualifying conditions, shareholders may be eligible to claim Business Asset Disposal Relief (formerly Entrepreneurs’ Relief), which can reduce the rate of CGT payable on qualifying gains.

The tax consequences of each route can vary based on the type of assets involved, the company’s tax position, and how the proceeds are extracted. Buyers should ensure that tax implications are considered early in the transaction process and should seek professional advice from both legal and accounting advisers to determine the most suitable structure.

8. Warranties and Protections.

In agreeing to acquire a company, a buyer will usually have relied upon various statements and assumptions, originating with the seller. To compensate for the lack of statutory protection available to a buyer, and to ensure the buyer can recover its loss if the basis of its decision to proceed with the purchase subsequently proves to have been incorrect, the main statements and assumptions being relied on are known as warranties. 

Far more warranties are sought in share purchases, due to the fact that the buyer will inherit all of the company’s liabilities, whether they’re known or otherwise. In an asset purchase, the buyer will seek specific warranties, in consideration of what assets are being acquired.

The number of warranties and the matters covered will vary considerably depending on the nature of the business carried on by the company, the extent of the company’s assets and the identity of the person providing the warranties. The most common areas covered by warranties are, but not limited to:

• Capacity/authority to sell;
• Ownership of shares;
• Group structure;
• Accounts;
• Contracts;
• Licences/consents;
• Litigation;
• Title to assets;
• Intellectual property rights;
• Employment matters; and
• Taxation matters.

Warranties given on these areas relate to matters in the past or present but will not normally relate to the future performance of the company.

If a warranty turns out to be incorrect, the buyer can bring a claim against the seller or warrantor for contractual damages. The buyer will need to show both a breach of the warranty (i.e. that it is untrue) and that it has suffered a loss as a result of the breach in order to bring a successful claim. The buyer’s claim will be for such damages as are sufficient to put it in the position it would have been if the relevant warranty had been true. The buyer has a duty to mitigate its loss. Where a specific liability is identified, the buyer will likely seek to include an indemnity rather than a warranty. Indemnities provide a guaranteed remedy to the buyer in circumstances where a breach of warranty may not necessarily give rise to a claim in damages

9. Separation at the end.

In an asset purchase, at the end of the transaction the seller would be left with the remaining assets, obligations and liabilities and would need to either continue trading (subject to the terms of the agreement) or wind down the remaining assets, obligations and liabilities. The seller would also need to consider ‘running-off’ their existing personal indemnity insurance (if any), to honour claims made after the business has ceased trading.

In a share purchase, it’s the seller’s aim to have a clean separation from the company and its future trading upon completion. However, the seller will remain liable under the warranties, during which time the buyer could make a claim against the seller. It is therefore in the seller’s interest to limit the warranties given, and the period of liability. 

Quick comparison: share purchase vs asset purchase

A side-by-side view of the key advantages and disadvantages of each structure can help clarify which approach is more suitable when buying a business.

Advantages of an asset purchase

• Negotiating power.
• Faster to complete.
• Allows retention of selected assets only.
• Potential tax allowances.

Disadvantages of an asset purchase

• Third-party consent often required.
• More complex tax calculation.
• Risk of customer or supplier disruption.
• TUPE and employee obligations.

Advantages of a share purchase

• Continuity of business contracts and staff.
• Cleaner exit for the seller.
• Possible Business Asset Disposal Relief.

Disadvantages of a share purchase

• Takes longer to complete.
• Greater risk exposure for the buyer.
• Increased due diligence requirements.

Key questions for buyers

Many buyers face similar considerations when deciding between a share purchase and an asset purchase. The answers below address some of the issues that commonly shape the structure of a transaction.

1. Which structure offers better protection against risk for buyers?
   
   An asset purchase usually gives buyers more control because they can choose which assets and liabilities to take on. This helps ring-fence risk by excluding historic or unknown liabilities.
    
2. Which option is usually more tax-efficient for buyers?
   
   Tax treatment varies, but buyers sometimes prefer asset purchases because they may be able to claim tax reliefs on assets acquired. Share purchases may involve taking on tax exposures that need careful due diligence.
    
3. Why might a buyer push for an asset purchase instead of shares?
   
   Buyers often insist on an asset purchase where there are concerns about legacy liabilities, ongoing disputes, regulatory issues, or where contracts or licences can be transferred cleanly.
    
4. When is a share purchase preferable for buyers?
   
   A share purchase is commonly preferred where business continuity is important — for example, retaining employees, contracts, and customer relationships without disruption.
    
5. How do earn-outs or deferred consideration affect buyers?
   
   Earn-outs can help bridge valuation gaps and reduce upfront financial exposure. However, they require careful structuring and robust performance metrics to avoid disputes later.
    
6. Do buyers always need warranty and indemnity (W&I) insurance?
   
   Not always, but W&I insurance can give buyers additional comfort where historic liabilities are difficult to quantify. It can speed up negotiations and reduce reliance on seller warranties.

Guidance from our corporate solicitors

Selecting the right deal structure early in the process can significantly reduce risk and improve transaction outcomes. Buyers often face pressure to commit quickly, but understanding the implications of a share purchase versus an asset purchase is essential before agreeing heads of terms or entering due diligence.

Hamed Ovaisi, chairman and corporate solicitor, emphasises the importance of seeking structuring advice early:

“Choosing between a share purchase and an asset purchase is rarely straightforward. Each structure carries different implications for risk, tax, operational continuity and deal certainty. The right approach depends on the specific commercial priorities of the parties and what the buyer ultimately needs from the transaction. Early advice makes a measurable difference to price, protection and speed of completion.”

Our corporate team advises on business acquisitions of all sizes, working closely with accountants and corporate finance advisers throughout the transaction process. We have corporate solicitors based in London, Brighton, East Sussex and Cumbria, and we support clients nationwide, regardless of location.