Should You Buy the Assets or the Shares?

Newsletter issue - February 07.

When purchasing a business run through a Limited Company, a decision has to be made as to whether it is the assets and goodwill within the company that is being bought or whether it is better to purchase the shares of the company. In many situations it is the case that the buyer wants the assets but that the vendor wants to sell the shares. However, it has to be one or the other and here are some of the key points to note...

  1. If you purchase shares you are taking over the company, warts and all. Any liabilities that later come out of the woodwork will be your responsibility. Warranties in the sale contract can help protect you but it means a more complicated sale contract and higher legal fees and relies on you being able to reclaim from the vendor, who by that time may have disappeared overseas in retirement.
  2. By buying the assets you can claim capital allowances on the actual amounts you pay for plant and machinery, not on the reduced written down value they are at in the company tax computations.
  3. By purchasing the shares you are purchasing the goodwill within the company and so when you subsequently come to sell the goodwill of the company yourself, you are effectively taking over the tax on the gain that occurred before you even bought the company.
  4. If you are trading through a limited company and purchase intangible assets such as goodwill, you can claim tax write-downs on the purchase of those assets. This is not the case if you buy the shares.
  5. Buying assets personally allows you to build up capital gains and only pay 10% CGT by using business assets taper relief. By buying the shares, the gains accrued are taxed within the company and you then have a tax problem in getting the funds out of the company and into your personal hands.
  6. If the company has accumulated tax losses you will be able to use them to offset against future profits only if you purchase the shares.
  7. If there is a property in the company, buying shares will reduce the stamp duty land tax payable from as much as 4% on the property to 0.5% stamp duty on the shares.

As one side in the transaction will often gain from a particular sale structure, you should make sure you know what you want and what it means to the other side to help in the purchase and sale negotiations. For a full tax appraisal considering the above and other issues on any business sale or purchase please contact us.

What our clients say about us...

  • "Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."

    ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT

  • "I couldn't ask for more from Paul as an Accountant. Paul has been accountant to Work Relief Charity Recruitment for just over a year now and is proving an invaluable asset. Accurate, knowledgeable, flexible with an emphasis on service delivery, I would recommend Paul's services to any organisation looking for an accounts professional."

    Neil Price - Managing Director at Work Relief Charity Recruitment

  • "Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"

    Lee Westrap MBCS - Director - Bulldog IT Services

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Booth & Co  |   The Hermitage  |   15a Shenfield Road  |   Brentwood  |   Essex  |   CM15 8AG        Telephone: 01277 224666    |   Email: info@boothandco.co.uk