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What's the Difference Between a Goodwill & Assets and a Share Sale?
28/06/2019
When you sell a business, you can choose whether you're selling your goodwill & assets, or shares.
But it can be confusing to know what the difference is and decide which works better for you.
Well, don't worry, we've summarised the key definitions and the pros and cons of both types of sale, to help you decide which is the right one for you.
Goodwill & Assets Sale
A goodwill & assets sale is when you sell the tangible and intangible assets of your business.
Say for example you’re selling a cleaning company.
Your tangible assets would typically be your equipment, cleaning product, vehicles, stock and so forth.
Your intangible assets would things like contracts, your trading name and the ‘goodwill' of the business.
When a buyer is placing an offer on your business, they will make a decision based on how much they think the goodwill is worth and what assets they want to be included in the sale.
Once the transaction has gone through it will be your responsibility to resolve any remaining assets and liabilities a new owner hasn't purchased.
Pros of Goodwill & Assets Sales
- You will tend to have fewer warranties and indemnities when finalising a goodwill and assets sale.
- You'd also be able to keep hold of any assets you don’t want to be included in the deal.
Cons of Goodwill & Assets Sales
- When you agree to a goodwill and assets sale, the liabilities of the business will generally stay with you.
- You also may need to gain consent from certain third parties - such as your landlord may need to grant permission for the lease to be assigned to a new owner if you rent your premises.
Share Sale
In a share sale, all of your business assets belong to the business itself. Then, a buyer will purchase shares of your business – whether that is a percentage or 100% of your share capital.
By owning shares in your business, your buyer by extension becomes the owner of everything the company owns.
Pros of Share Sales
- With a share sale, there is a lot less risk involved in making sure employees, clients and suppliers stay with the company as any contracts in place will still stand.
- You might also see a better return with a share sale, as you may be eligible to claim Entrepreneurs Relief.
Cons of Share Sales
- In a share sale, the company will retain all of the business’s liabilities.
- You also may be required to provide certain warranties and indemnities to protect the new owner against these or even have to provide personal guarantees. This could leave you exposed to personal liability – so it’s important to make sure you talk all aspects through thoroughly with a solicitor whilst your sale is going through.
Both goodwill & assets and a share sale have their benefits and their negatives but at the end of the day, the best method for you will depend on the nature of your business and what you want to get out of it.
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