Selling your business or your company – what’s the difference?

September 2024

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When first speaking to company owners who are thinking of selling up, I am often surprised by how many of them have not thought about the differences between a company sale (ie selling the shares in a company) and a business sale (ie a company selling its business and assets as a going concern). And even when speaking to quite savvy business owners or accountants and other professional advisors I am often surprised at how they have not appreciated some of the differences between these two types of deals.

So, in this series of Guides, I am going to explain lots of ways in which company sales and business sales are different, which you should ideally be aware of if you are a business owner who might ever want to sell (or buy) a business (or a company…).

The fundamental difference

A company is a legal entity (just like you and me) which carries on a ‘business’ as a going concern. This involves all sorts of different bits and pieces which the company owns or uses. To sell the business you need to break down which bits and pieces the company is actually selling (or not selling) and then make sure you do what’s needed to transfer them to the buyer (in the same way you would if you were a sole trader or partnership selling your business).

The company is owned by whoever owns the ’shares’ in it. Shares are things a shareholder has in a company which mean they own some of it. A company can have lots of owners all of whom own shares. You can have all sorts of different types of shares with all sorts of different types of rights attached to them. A share sale involves shareholders selling their shares in the company to a buyer who then owns those shares. To sell the whole company all shareholders need to sell all their shares to the buyer so that the buyer then owns all the shares.

Each type of deal has very different implications which need to be considered by the sellers and the buyer, including:

• • Legal and commercial implications. The types of deal are legally so different that very different forms of sale agreement are needed. The commercial implications (risks, opportunities, seamlessness, liabilities…) will vary significantly from deal to deal, and can effect which type of deal the parties might want to choose to do.
• • Tax implications. The tax treatments for sellers and buyers (and the target company itself) are very different. (It is crucial for all parties to get specialist tax advice).

Legal implications

• Different parties.

Each type of deal has different parties. In a business sale the company is the seller. The price is payable to the company (and the shareholders will need to work out what do with it, eg distribute it to the shareholders).

In a share sale the sellers are the shareholders who are selling their shares in the company.

• Different things being sold

In a share sale the only things being sold are the shares, which just involves the sellers handing over a simple share transfer form. So technically it is very easy to implement. But the buyer ends up inheriting the whole company, warts and all, including all its assets and liabilities (including tax). This clearly involves a much bigger risk for the buyer, which will affect how it goes about looking to protect itself.

In a business sale the buyer only needs to buy what it wants to buy. So it can cherry pick the assets it wants. As a general rule (with some exceptions such as relating to employment or environmental laws) it doesn’t take over any liabilities of the company to its creditors (trade, tax or anyone else). The sale agreement is in some ways more complex than a share sale agreement because it needs to be carefully drafted to identify what is and isn’t being sold to or taken over by the buyer, and to set out how this is to be done (which is not at all straightforward as different types of assets need different types of treatment). But it is also simpler than a share sale deal because the buyer doesn’t need to take over the company’s liabilities so it doesn’t need to do all the related due diligence or look for all sorts of related protections (warranties and indemnities) from the selling company in the sale agreement.

• Continuity of business

A share sale provides a more seamless transition, because the buyer just inherits the company and everything that comes with it. With a business sale the buyer needs to be careful that everything that needs to happen for a smooth transition can take place. This can be a problem when dealing with third parties such as regulators or landlords or key licensors, suppliers and customers whose arrangements are all with the company and who all need to consent to some extent in order for the buyer to take things over.

In the following Guides in this series I will explain in more detail ways in which share sales and business sales are different, why you might prefer to do one than the other, and particular issues and risks you need to be aware of.

 

What next? Contact me for a complimentary business sale consultation.

If you would like to discuss any of the issues raised in this Guide or any other issues relating to the possible sale of your business (or company!) please feel free to email me at andrew.james@onhandcounsel.co.uk to arrange a complimentary consultation where I can help you to identify what might be involved and how I can help. This will help you to avoid some of the pitfalls to which you might otherwise be exposed, and give you the peace of mind of knowing that you have an approachable competent corporate lawyer ONHAND who can provide you with experienced, effective and cost-effective advice and assistance.