When selling a company, there are basically two main types of transaction: the share deal and the asset deal. Both approaches offer different advantages and challenges that are relevant for both buyers and sellers. The main differences between these two types of transaction are outlined below.
Share Deal
In a share deal, the buyer acquires the shares in the target company. This means that he takes over the company as a whole, including all assets, liabilities, contracts and any legal obligations. Here are some of the most important features:
1. transfer of the entire company:
o The buyer acquires the shares in the company and thereby becomes a shareholder.
o All assets and liabilities, including current contracts and legal obligations, are transferred to the buyer.
2. tax aspects:
o Taxation takes place at the level of the shareholders, not at the level of the individual assets.
o Potential tax advantages may arise for the seller, especially if the capital gain is tax-privileged.
3. legal continuity:
o The company remains legally unchanged, which often enables a smoother continuation of business operations.
o However, there is a risk that unknown or undiscovered liabilities are transferred to the buyer.
Asset Deal
In contrast, in an asset deal, the buyer acquires individual assets and liabilities of the target company. Here are some of the key features:
1. selective acquisition:
o The buyer can select specific assets and liabilities to take over.
o This enables a targeted acquisition of profitable or strategically important parts of the company.
2. tax aspects:
o The transfer of assets may result in taxable gains at the company level.
o However, the buyer can depreciate the acquisition costs of the acquired assets, which can offer tax advantages.
3. contractual renegotiation:
o Current contracts usually need to be renegotiated or transferred, which can be time consuming.
o However, the buyer can often avoid taking on unwanted obligations or liabilities.
Comparative view
1. complexity and expense:
o A share deal can be faster and less complex as the target company is acquired as a whole.
o An asset deal requires detailed negotiations on each individual asset and liability, which can make the process more complicated and time consuming.
2. assumption of risk:
o In a share deal, the buyer assumes all known and unknown liabilities, which can represent a higher risk.
o In an asset deal, the buyer can better manage the risk by selectively assuming assets and liabilities.
3. continuity of business operations:
o A share deal often offers greater continuity as the company continues unchanged.
o An asset deal can lead to interruptions in business operations, as contracts and approvals have to be obtained again.
Result
The choice between a share deal and an asset deal depends on the specific objectives and preferences of the parties involved. A share deal offers a simple and quick takeover of the entire company, while an asset deal allows more control over the acquired assets and liabilities. It is crucial that both parties conduct thorough due diligence and seek legal and tax advice to make the best decision for their specific situation.
We will be happy to provide you with individual advice or further information. Contact us to discuss your questions and develop the optimal strategy for your business transfer.
Author:
Dr. Dominic John Patrick Porta, LL.M.
Attorney at Law (Düsseldorf Bar Association n° 52954)
Abogado (ICAIB n° 6645)
dominic.porta@anwaltmallorca.eu
www.anwaltmallorca.eu
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