Buying a business is often the most significant event in a person’s professional life, so doing the job right is important.
A business purchase can be structured in two ways: via an asset purchase or a share purchase. The distinction between the two lies in the approach and scope of the acquisition.
In an asset purchase, the buyer acquires specific assets and liabilities of the business while leaving the seller’s legal entity intact. On the other hand, a share purchase involves acquiring ownership of the entire business by purchasing its shares, which includes all assets, liabilities and the legal entity itself.
Buyers generally prefer an asset purchase, but often have to settle for a share purchase – an arrangement that forces them to deal with the flip side of the asset coin: the company’s liabilities.
As a result, buyers need to conduct a robust due diligence assessment to ensure there are no skeletons in the closet of their new property.
The onus is on the purchaser to ask for all the information they need to make an informed decision before executing the transaction, so it’s important to put together a team of experienced legal and financial professionals who know exactly what to look out for.
To get you started, here are my top six issues to consider when buying a business through a share purchase: