Shares or assets?
A threshold question in M&A

Published: 21 February 2023


A threshold question for a buyer (if not also a seller) in UK M&A is whether to acquire the target company’s share capital or the target company’s assets.  The choice of approach will send the parties down fundamentally different paths.  Failing to choose the correct path at the outset of a deal usually results in delay and increased costs, if not endangering the closing of the deal itself.

Set out below is our take on the pros and cons of structuring a transaction as a share deal and then an equivalent analysis for an asset or business deal.  These are the key points to think about when structuring a UK acquisition.  In this updated version of this Insight piece, we have also included some points to consider with regard to dealing with existing financing arrangements and some thoughts on the use of hive-down and similar structures.

Further below are brief thoughts from a US perspective on how US buyers think about the shares vs assets decision, written by one of our best friend law firms, Prospera Law.  We then conclude with some considerations from a UK data protection/privacy perspective.

Do bear in mind of course that nothing in this Insight piece constitutes legal advice nor should it be relied upon when entering into any particular transaction, and in entering into any particular transaction you should take professional advice from suitably qualified advisors.  When structuring an M&A transaction there is a lot more to think about than can be captured in this piece.  Thoughts in this piece will also go out of date one day.  When market practice changes so too should the advice on structuring a deal.

This Insight piece was compiled by Henry Humphreys, Annette Beresford, Robert Humphreys and Chris White, with input from US best friend firm, Prospera Law

Shares or assets?

A threshold question in M&A

Shares or assets?

A threshold question in M&A

Share deals

On a share deal, the buyer will normally acquire the entire issued share capital of the target company (‘Target Ltd’) from the shareholders of Target Ltd (the ‘Sellers’).

Some of the principal pros and cons of this approach are set out below, and in setting these out we have assumed that we are looking at a cash only deal with no equity issued as consideration.

Share Deal

The Buyer buys the Target Ltd shares from Seller shareholders

Pros Cons
Simplicity – the Buyer picks up all desired assets and business in a single package, which remain housed in Target Ltd – nothing is lost/left out ‘Warts & all’ – buyer picks up Target Ltd liabilities (whether or not known pre-completion – buyer beware!)

If Target Ltd owns assets, businesses or subsidiaries that the Buyer does not wish to acquire, a restructuring exercise may need to be carried out prior to completion – see below under ”Hive downs’ and other pre-sale restructurings’.

The Buyer may want to extensively diligence for Target Ltd liabilities and will usually seek a fuller suite of warranty and indemnity protection than on an asset deal
Means of transfer is a stock transfer form as only one type of asset is being transferred, the Target Ltd shares
The acquisition of shares may be attractive to the Buyer if Target Ltd houses valuable tax assets, such as trading losses or capital losses that may be available to mitigate future tax liabilities of Target Ltd (although the use of carried forward losses following a change of control may be restricted by a range of anti-avoidance legislation aimed at preventing tax benefits from ‘loss buying’) Tax history and liabilities remain with Target Ltd, and usually require a tax deed between the Buyer and the Sellers to apportion risk as regards tax issues
Sale proceeds usually paid straight to Target Ltd’s shareholders
Individual sellers may qualify for business asset disposal relief or investors’ relief (and therefore a lower rate of capital gains tax (currently 10%) on the sale proceeds)

Corporate sellers may qualify for the substantial shareholding exemption (‘SSE‘) (from corporation tax on chargeable gains) – where the SSE applies, it may also cover de-grouping charges that might otherwise arise (under the tax regime for chargeable gains) in respect of assets previously transferred intra-group to Target Ltd. De-grouping charges that would otherwise arise under the tax regime for intangible assets (such as patents, trade marks and goodwill) may be similarly ‘turned off’ where the SSE applies

No VAT chargeable on the sale of shares

Stamp duty at 0.5% of the consideration is payable to HMRC (the Buyer usually pays)
Usually 100% shareholder approval is required to close (because they are all selling…!)

An uncontactable or dissident sell-side minority might need to be ‘dragged’ into the sale

Watch out for change of (Target Ltd) control clauses in commercial contracts, senior executive employment contracts and leases (although consent process usually easier than on a business/asset sale, an email alone from the supplier/customer might be sufficient)
TUPE regulations usually do not apply (and usually there is no formal obligation to inform and consult employee representatives as to the change of control), but… >>> Target Ltd still employs all employees and all historic and live employment obligations and liabilities remain in place – cost of redundancies and down-sizing to be factored in by the Buyer
Statutory controls on financial promotions and financial assistance may need to be considered
Professional costs usually lower than on an asset deal

Asset (and business) deals

On an asset deal, the Buyer will acquire the assets of Seller Ltd if not also the Seller Ltd’s business as a going concern.

Since it is Seller Ltd that is selling the assets and business to the Buyer – and not Seller Ltd’s shareholders – an asset deal is fundamentally different to a share deal where it is the Target Ltd shareholders selling their shares to the Buyer.

The pros and cons of this approach are set out below, and in setting these out we have assumed that we are also looking at a cash only deal with no equity issued as consideration.


Asset (and business) deal

The Buyer acquires target business and assets from Seller Ltd, which may then distribute the proceeds to Seller Ltd shareholders

Pros Cons
Control – the Buyer (and Seller Ltd) can ‘cherry-pick’ the assets it acquires and leave behind anything else it does not want (including liabilities)

In a distressed/insolvency scenario or where Seller Ltd business is the subject of significant potential liabilities, buying only the assets is often desirable

Useful/desirable if buying a division from a group not housed in a separate subsidiary (absent a hive-down)

Complicated and ‘messy’ – as a general rule, assets don’t transfer automatically by law and need to be individually assigned or transferred across piecemeal

It is sometimes hard to identify exactly which assets are part of a business being sold and care needs to be taken that the purchase documents accurately reflect what is and what is not being transferred

Integration of those assets post-close into the Buyer/Buyer group is often a major exercise – they don’t come pre-packed as is the case on a share sale

The Buyer may be more relaxed about due diligence as it is concerned with acquiring specific assets only and can specifically exclude liabilities from the sale

In particular, the Buyer will not inherit Seller Ltd’s tax history in full (although care should be taken with regard to certain types of taxes and compliance obligation, such as VAT and PAYE) – this means that normally relatively few tax warranties and no tax deed will be required

Instrument(s) of transfer required for each asset class – e.g. real estate requires formal conveyances/assignments, contracts have to be formally assigned or novated, IP will require formal assignments, new permits & licences may be required for Buyer Ltd, etc

If not done properly then legal title to certain assets may inadvertently be left behind

Some of these will require consent or action from a third party which can add significant complications and/or delays

Since Seller Ltd is selling, limited involvement is required from its shareholders Sale of the business and key assets may need investor consent, if Seller Ltd is VC/PE backed
Great care will need to be taken if personal data is amongst the assets being sold – see below for further thoughts on data protection
Complexity as regards sale proceeds – consideration payable usually needs to be moved out of Seller Ltd and into the Seller Ltd shareholders’ hands post completion

Tax treatment of extraction needs to be assessed by Seller Ltd shareholders – tax liabilities may arise both for Seller Ltd (on the sale) and for Seller Ltd shareholders (on the extraction)

Existing customers and business relationships do not automatically transfer over to the Buyer – specific written assignments are usually required, if indeed the assets can be transferred at all
Assuming there is a transfer of a business, TUPE applies as regards Seller Ltd’s employees meaning that certain employees may automatically transfer with the business by operation of law

Buyer Ltd may have no option but to take on employees on their current terms

There will probably be an obligation on Seller Ltd and the Buyer to inform and consult the employee representatives of their affected employees pre-completion – this may impact on the sale timetable. There are potentially costly penalties for failing to do this

Tax relief (amortisation relief) may be available in respect of expenditure incurred on the acquisition of intangible assets (where this would not be available on a share deal). Special rules and restrictions apply in respect of relief for expenditure incurred on the acquisition of goodwill

The amount paid by Buyer for individual assets will normally be those assets’ base cost

Conversely, on a share deal, there is normally no step up in base cost for assets held by Target Ltd (a step up may occur on a share deal in respect of assets that give rise to a de-grouping charge or would do so but for such charge being covered by the SSE)

If the transfer is not the sale of a going concern, VAT (at a current rate of 20%) is payable to HMRC to the extent the transfer of Seller Ltd’s assets gives rise to a taxable supply so the VAT treatment of the transfer of each type of assets needs to be evaluated

SDLT may be payable on real estate transferring

Tax assets (such as carried forward trading losses) are not available to be utilised going forward from completion

Position as regards capital allowances to be diligenced

If there is nothing left in Seller Ltd following the sale, Seller Ltd would usually be wound up post completion, incurring further professional costs and admin
Statutory controls on financial promotions and financial assistance (which may apply in respect of a share sale) do not apply
Legal and professional costs are usually higher, sometimes much higher, than on a share deal

Financing and security arrangements

Either route will require a review of any existing financing and security arrangements, to confirm whether they permit the proposed sale of Target Ltd or of the relevant business / assets of Seller Ltd (as applicable) and/or what permissions will need to be obtained from lenders before the sale can proceed.  Depending on the financing arrangements of Target Ltd / Seller Ltd, existing debt may need to be paid off pre or post sale or existing security over shares and/or target assets may need to be replaced with new security post sale.

While a full discussion of this topic is beyond the scope if this piece, the following considerations commonly apply to share deals and asset (business deals) with regard to financing / security arrangements:


Share Deal Asset (business) deal
Where the Buyer expects to take Target Ltd on debt free, arrangements need to be made for Target Ltd to repay any relevant debt on or prior to completion

The Buyer will want to carry out any necessary due diligence to be comfortable that any relevant debt can be pre-paid and whether Target Ltd will be subject to prepayment or other fees or other obligations on or following the discharge of any such debt

Arrangements will need to be made for any relevant security or guarantees to be released over the sale shares and the business being sold and evidence of such release to be provided to the Buyer’s satisfaction

Seller Ltd needs to check the terms of any relevant facility agreement(s) to check, in particular: (i) that the asset sale is permitted (or whether a lender consent should be obtained); and (ii) whether the proceeds need to be treated in a particular way (e.g. to prepay some part of the debt)

Where assets to be sold are subject to security arrangements, a deed of release (or a deed of partial release, as applicable) will need to be obtained, and evidence of that release will need to be provided to the Buyer’s satisfaction

Further documents (such as letters of non-crystallisation) may be required depending on the circumstances

It is fairly common for a share purchase agreement to provide for the repayment of relevant debt on completion and for the amount of such debt to come off the purchase price – where this is done, care should be taken with regard to UK stamp duty, as an assumption of debt by the Buyer would generally be treated as stampable consideration. On the other hand, a separate obligation on the Buyer to procure the repayment of debt on completion can usually be structured to fall outside the scope of UK stamp duty
Where Target Ltd is sold with existing debts that are not repaid on completion, the Buyer will need to be clear on the amount and the terms of the debt taken on with Target Ltd through relevant due diligence. Further, arrangements will need to be made to ensure all relevant lender notifications and/or permissions are made, obtained and evidenced to the Buyer’s satisfaction

'Hive downs' and other pre-sale restructurings

The parties to an M&A transaction might seek to structure it as a sale through a ‘hive down’ where Seller Ltd transfers the target assets or business to a newly established subsidiary (‘New Target Ltd’) which is then acquired by the Buyer.

This type of structure seeks to combine some of the main benefits of an asset / business deal (where assets can be ‘cherry picked’ and the Buyer does not acquire an existing company with its history) with some of the main benefits of a share deal.  It may be particularly attractive where Seller Ltd holds valuable tax assets, such as carried forward losses, which can be transferred to New Target Ltd and preserved for future use when New Target Ltd is part of the Buyer’s group.

The use of a ‘hive down’ structure usually relies on the availability of the SSE to Seller Ltd, to cover de-grouping charges that would otherwise be triggered by the sale of New Target Ltd shortly after (initially tax neutral) intra-group transfers of the target assets to New Target Ltd.  The changes made by the Finance Act 2019 to the tax regime for intangible assets (which now also prevent de-grouping charges being triggered in respect of pre-sale transfers of intangible assets in circumstances where the SSE applies, thereby achieving near parity of the tax treatment of intra-group transfers of assets under the intangible assets regime and under the chargeable gains regime) have also made ‘hive downs’ a more attractive option for M&A transactions involving intangible assets of significant value.

While a full discussion of ‘hive downs’ is beyond the scope of this piece, it should be noted that a ‘hive down’, and in fact any other type of pre-sale restructuring (such as a ‘hive out’ where unwanted assets are transferred to a different group company prior to completion), will need to be properly planned and thought through.  In addition to confirming the availability of the SSE, there will be a host of other tax issues to consider, from VAT and SDLT to anti-avoidance rules relating to the use of carried forward losses following a change of control.  The availability of relevant reliefs generally depends on a number of factors such as commercial motifs, trading status, order and timings.  And as always, tax is only one part of the deal and there will be many other parts and commercial matters to be negotiated between the parties. Above all, a complex structure requires cooperation and proper communication between the parties and their advisers.

Thoughts from a US perspective
Written by Donald Lee and Erika Reed of Prospera Law LLP

Many of the considerations that a UK buyer would use to determine whether to make an acquisition by stock purchase[1] or asset purchase are similar to those that a UK buyer would analyze.  It is also important for a buyer to consider its negotiating leverage when choosing a transaction structure for an acquisition – in a highly competitive auction, a buyer might have no choice but to agree to a more seller-favorable deal structure to make sure it can win the bid.  Below are several issues for a US buyer to take into account with respect to transaction structure:

[1] When referring to a “stock purchase”, we are including statutory merger transactions under state law since they have the same legal and tax treatment as a stock purchase.

Liability risk

In a stock purchase, the buyer acquires the target entity’s stock (and as a matter of law, acquires all of the target entity’s assets, rights and liabilities). As such, the buyer would be fully responsible (because the buyer will then own the target) for all liabilities of the target after the deal is consummated.  In a stock purchase, the definitive agreement will allocate risk of being responsible for liabilities between buyer and seller as those terms are negotiated – a typical purchase agreement in a US transaction has extensive provisions around indemnification and liability for damages, losses, costs and expenses arising from pre-closing events and circumstances.

In an asset purchase, however, a US buyer can pick and choose what assets it wants to acquire and what liabilities it wants to assume from the seller.  As a general matter, the seller will retain any liabilities that the buyer is unwilling to assume and will be responsible for paying or settling such liabilities.  And on top of that, the asset purchase agreement will normally require the seller to indemnify the buyer for all costs, expenses and damages arising from liabilities retained by the seller.

Buyers and sellers in asset purchase transactions should also be cognizant of “bulk sales” laws in certain states that require notification to be provided to seller creditors to prevent sellers from avoiding creditor liabilities through asset sales. 

Tax issues

A word of warning, we are not tax lawyers and do not provide tax advice to any of our clients, but we are providing basic commentary on major tax issues that arise in US mergers and acquisitions.  Please always be sure to consult with tax advisors on any transaction.

One of the major advantages for a US buyer of assets is that, so long as the value of the assets exceeds the cost basis of such assets for the seller, the buyer will receive a “step-up” in the cost basis for the acquired assets – the purchase price will be allocated across the assets acquired.  As a result, if the buyer later resells those assets, any taxable gain will be measured from the purchase price allocated to those assets when the initial asset purchase closed which would cause a reduction in taxable gain.  If there is goodwill acquired in the transaction, this can also be amortized, and this amortization is tax-deductible.  Basis step-up with respect to seller assets is not available in a stock purchase.

Sellers that are sub-chapter C corporations, however, should try to steer the buyer away from an asset purchase in favor of a stock purchase because any gain on the sale of the assets is taxable to the corporate entity, and then distribution of the proceeds from such transaction from the corporation to its stockholders would be subject to an additional layer of tax, which is the so-called “double tax regime” of US C-corporations.  Prospera Law, like Humphreys Law, works very regularly with start-up and emerging growth companies that are backed by venture capital funds.  In the US, those start-ups and emerging growth companies are almost always organized as C-corporations as US venture capital funds require that their portfolio companies must be C-corporations.  So, the double-tax problem is a consistent issue when a venture backed company is forced into an asset sale.

Transfer of assets

In any M&A transaction, legal counsel must review any contracts that are being acquired by the buyer to determine if the contracts contain anti-assignment provisions or change of control restrictions.  If the contract requires consent of a third party to be assigned to a new contract party or acquired in a change of control, that is an additional condition to closing the transaction.  In an asset purchase, any contract being sold by the seller to the buyer must be assigned, so any form of anti-assignment language in the contract will necessitate consent from the counterparty.  In a stock purchase, on the other hand, an anti-assignment provision that does not specify consent in respect of a change of control, stock sale or merger will not require consent of the counterparty since the target company remains a party to the contract, i.e. there is no actual assignment of the agreement.  Consequently, an asset purchase is more likely to require third party consent to any transfer of a contract.

Similarly, if the buyer is acquiring registered intellectual property in an asset purchase, a filing will need to be made with the US Patent and Trademark Office to provide notice that ownership of the intellectual property has changed hands.  In a stock purchase, however, such filing is typically not required since the same entity continues to own the intellectual property.

If the seller has licenses, permits or other permissions provided by any governmental authority to operate its business, an asset purchase transaction will almost certainly require consent from such governmental authority for transfer of such license, permit or other permission.  That might also be the case in a stock purchase since governmental statutes and regulations could expand the definition of “transfer” or “assign” to include a merger, stock purchase or change of control, but each applicable statute or regulation would have to be reviewed.

Corporate governance

In a stock sale that is not a merger, a buyer needs to get all stockholders to agree to the transaction, otherwise the buyer will not have complete ownership of the target.  This unanimous requirement in a non-merger stock sale creates a negative dynamic for getting a deal done if not all seller stockholders approve of the deal.  A merger or an asset sale can be consummated without unanimous consent of selling stockholders.  Subject to contractual and state law statutory consent rights, an asset sale generally requires consent of the holders of a majority of the voting securities of the selling entity.  A merger can be consummated with less than 100% of seller stockholders consent, subject to negotiation in the definitive documentation, as required by the buyer, as to what percentage of voting shares must approve the merger for the deal to close.

Thoughts from a UK data protection/privacy perspective
Written by Robert Humphreys of Humphreys Law

Given how broadly the terms “process” and “personal data” are defined under the UK/EU data protection regime, any acquisition deal would almost always involve the processing of personal data throughout the life cycle of the deal, including during initial negotiations between the Buyer and Seller Ltd, the due diligence process, and post-completion.

Regardless of whether the acquisition takes the form of an asset or share deal, in addition to the typical confidentiality undertakings found in an NDA, Seller Ltd would likely want to incorporate additional provisions addressing the Buyer’s obligation to comply with applicable data protection laws with regards any personal data shared during negotiations and due diligence. Equally, the Buyer may seek contractual assurances and warranties that Seller Ltd is lawfully entitled to share personal data with the Buyer for such purposes, with a view of ensuring any subsequent processing of personal data by the Buyer is properly authorised and compliant with applicable data protection laws.

Further, in the use of any data sites during the due diligence process, Seller Ltd should be aware of the data minimisation principle, which requires the processing of personal data to be limited to what is directly relevant and necessary to accomplish a particular purpose. Therefore, any personal data uploaded onto the data site should be limited to what is needed for the Buyer to reasonably conduct its due diligence and to evaluate Seller Ltd in connection with the proposed acquisition.

Asset deals may also pose additional considerations from a data protection perspective compared to share deals. As described earlier in this article, the integration of business assets pursuant to an asset deal is often a major exercise, and so the Buyer may well want to start the integration process some time between signing and completion in hopes of a smoother transition post-completion.  The parties ought carefully to consider if they have a legal basis for personal data to be processed in connection with any such pre-completion integration (i.e., query whether the interests of individual data subjects override any legitimate business interest of the Buyer and Seller Ltd).

On completion of a share deal, only Seller Ltd’s shares will be transferred to the Buyer, and so the controller of personal data remains the same. Conversely, in an asset deal, completion would involve the direct transfer of personal data from Seller Ltd to the Buyer, resulting in a change of controller of such data. The obligation to comply with the transparency principle and to keep data subjects informed (such as to inform data subjects of a change in legal entity that controls the processing of their data) thus arguably has greater weight in asset deals than share deals.

If you would like to discuss a particular M&A deal or any of the issues raised by this piece then please contact us at

"*" indicates required fields

This piece was written by Henry Humphreys and Annette Beresford with input from Robert Humphreys and Chris White, and with US perspective provided by Donald Lee and Erika Reed from Prospera Law.

All the thoughts and commentary that HLaw publishes on this website, including those set out above, are subject to the terms and conditions of use of this website.  None of the above constitutes legal advice and is not to be relied upon.  Much of the above will no doubt fall out of date and conflict with future law and practice one day.  None of the above should be relied upon.  Always seek your own independent professional advice.

Humphreys Law