Share deal and asset deal

What it means

Share deals and asset deals are two ways of buying a business. In a share deal, the buyer acquires an interest in the company, for example through a transfer of a business share, and the company stays the same with all its assets and liabilities. In an asset deal, the buyer purchases only selected assets, contracts or the whole enterprise, but not the company itself.

A share deal is technically simpler: contracts, licences and employees stay in the company and need not be transferred. The buyer, however, also takes on hidden risks from the past, such as tax arrears or disputes. An asset deal lets the buyer choose what it wants but requires items to be transferred one by one.

A special form of asset deal is the sale of a business as a whole, in which all rights and obligations relating to the enterprise pass in a single act. The choice depends on risks, taxes, VAT, third-party consents and the buyer's intentions.

How it works in practice

In a share deal, thorough due diligence is essential because the buyer inherits the company's entire history. Risks are addressed through seller warranties, retaining part of the price in escrow or deferred payments tied to results, known as an earn-out.

The tax consequences differ. In a share deal, the seller is taxed on the gain according to its status and the buyer cannot depreciate the purchase price. In an asset deal, the buyer can depreciate the assets from their new value. The sale of a business as a whole is outside the scope of VAT, whereas sales of individual assets are usually subject to VAT.

An asset deal requires transferring contracts, which often needs the counterparty's consent, the transfer of employees under the Labour Code, and dealing with licences and permits that do not pass to the buyer automatically. Preparation therefore takes longer.

What to watch out for

In a share deal, the risks lie in the company's past. A tax audit of old periods, warranty claims or disputes with employees may surface only after the purchase. Without solid warranties and liability caps in the contract, the buyer bears them.

In an asset deal, some liabilities, such as tax and contribution debts linked to the enterprise, may pass with it, and the selling company is left as an empty shell. What happens to it must be settled, and the buyer protected against claims by its creditors.