Selling a business is often a life changing event that’s years (sometimes decades) in the making. For the entire business lifecycle, all aspects of the business contribute to the prospect of a successful exit, even if an exit isn’t on your radar until quite late on!

When the time comes to start thinking about your exit – it’s actually never too early – one of the most important decisions will be whether the deal is structured as an asset or share sale.

What does this mean, and why does it matter? In this blog, I’ll explain.

Why the right deal structure matters

The difference between an asset sale and a share sale is not academic; it directly affects a number of key areas you will measure success against, including:

• How much cash ends up in your pocket
• Your tax position
• The risk profile for the buyer
• The complexity and timing of the transaction

Understanding this distinction early puts you in a really strong negotiating position.

Starting point: A typical SME exit scenario

The following is an example of a typical SME exit scenario.

• Turnover: £3m
• EBITDA: £400k
• Owner-managed limited company
• Clean trading history
• Founder looking to exit within 1–3 years

This business has attracted interest from both trade buyers and private investors due to its strong history and profitability. Heads of terms discussions then start, which is where deal structure becomes critical.

What is a Share Sale?

In a share sale, the shareholders will sell their shares in the company directly to the buyers.

In other words, the buyer acquires the company itself, all assets and liabilities, as well as employees, contracts, IP and trading history.

From the outside, the business continues exactly as before; it just has new owners.

The benefits of a share sale

Sellers will usually prefer a share sale structure, and they are often the gold standard for UK SME owners. Here is why:

• Tax efficiency: Shareholders typically pay Capital Gains Tax, often at reduced rates if Business Asset Disposal Relief applies.
• Clean exit: Cash is received personally. There is no need to extract funds from the company later.
• Simplicity: No need to transfer individual assets, contracts, or licences.
• Finality: Once sold, the seller walks away from historic liabilities (subject to warranties and indemnities).

For many founders, these advantages of the share sale align perfectly with their goal of a clean, tax-efficient exit.

What is an Asset Sale?

Unlike the relative simplicity of a share sale, the asset sale structure is a little more complex. In an asset sale, the company sells specific assets to the buyer and, in some cases, selected liabilities.

This could include:

• Plant and equipment
• Intellectual property
• Customer contracts
• Stock
• Goodwill

The company itself will still be owned by the existing shareholders.

So why would this be used in an exit scenario?

The benefits of an asset sale

From the perspective of a prospective buyer or investor, there are some clear advantages of an asset purchase route, as opposed to a share purchase.

• Risk: The asset sale enables certain historic liabilities (tax, legal, employment) to be left behind.
• Selective acquisition: Buyers can cherry pick which assets they want and avoid unwanted obligations that come with buying the whole company.

Despite its advantages for the buyer/investor, this structure introduces a few complications for the sellers.

Tax implications of share sales and asset sales

The difference between a share sale and asset sale structure is usually the most significant when it comes to tax.

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This means two deals with the same headline price can produce materially different outcomes, depending on whether a share sale or asset sale structure is selected.

Where friction may arise between investors and founders

It’s not difficult to see where tensions may arise here between buyers and sellers, given the striking differences between each structure.

In most cases, sellers prefer a share sale while buyers prefer asset sales. This is completely normal. Experienced investors will price risk, warranties, indemnities, and tax efficiency into their offers.  

Founders who understand this early on can really strengthen their position by preparing the business to support a share sale, address risk issues before due diligence spots them, and strengthen their overall negotiating position.

Can deal structure affect valuations?

A headline valuation can often be misleading, especially when taken in isolation. A £5m asset sale and a £5m share sale are not equivalent.  

This means, when assessing offers, SME owners should focus on things like:

• Net proceeds after tax
• Escrow and deferred consideration
• Ongoing liabilities or earn-outs
• Time and complexity to completion

An experienced buyer or investor will be thinking about these aspects and how they impact the real value of the company – sellers should do the same!

Which deal structure is best?

There is no clear answer to which structure is best, as it depends entirely upon the business/assets, and the goals of the buyers and sellers. However, there are some typical scenarios which support specific structures better.

• High-quality, well-run businesses with clean histories tend to support share sales
• Distressed or complex businesses may necessitate asset sales
• Competitive processes often push buyers toward seller-friendly structures

The key is time and preparation. Planning early and understanding how this all works, and how the structure impacts value, means you can plan years in advance rather than react under pressure.

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If you are planning an exit, raising investment, or simply want to understand how these structures affect your long-term goals, early advice can make a big difference. Contact us today if you’d like assistance.

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