Structuring as share purchase or asset purchase
The business acquisition can be structured as either an asset purchase or a share purchase; in certain instances (e.g., when the seller trades in his personal name without a company), an asset purchase would represent the only route. A simplified comparison of the two approaches is outlined below:
Asset purchase
Advantages
Certainty over assets being acquired e.g., certain potential liabilities (e.g., an ongoing court case), can be left behind
Certain assets (e.g., an unrelated line of business) can be omitted
Asset purchase
Disadvantages
Execution might be more complex e.g., transfer employees individually to the acquiring business
Careful consideration must be given to the assets being acquired e.g., include brand name, intellectual property of proprietary know-how
The seller will have to liquidate the shell company
Share purchase
Advantages
More straightforward execution of acquisition i.e., execution of share purchase agreement
Represents a continuation from the previous owner e.g., customers and suppliers do not need to update company details and bank account details
Contracts and permits (e.g., customer contracts for the provision of a recurring service or government permits) remain unaffected and do not need to be re-signed (or worse, renegotiated)
Share purchase
Disadvantages
Proper diligence needs to be carried out to avoid unexpected liabilities e.g., an ongoing or threatened court case
Overall, the approach pursued depends on the buyer’s objective e.g., the acquiror might be interested to continue the business after the founder’s retirement or the acquirer might only be interested in a certain customer or supplier contract (e.g., right to import a product in Malta).
Trident Park, No. 1, Level 1,Mdina Road, Zone 2, Central Business District,Birkirkara CBD 2010, Malta
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