Asset purchase vs share purchase: what a buyer actually takes on

Asset purchase vs share purchase is the first structural question in buying a company, and the answer decides who carries old liabilities, how the deal is taxed, and which contracts need someone else's permission to continue. In an asset purchase, the buyer selects specific assets and agreed liabilities, and the seller's company keeps the rest, including its history. In a share purchase, the buyer buys the company itself, shares and all, taking on everything already inside it, known or not. Neither structure is universally better; each answers a different question about what you want to own.

What changes hands in each structure

In an asset purchase, the buyer and the seller's company sign an agreement listing exactly what is bought: equipment, stock, leases, customer contracts, intellectual property, goodwill, and only the liabilities both sides agree to assume. The seller's company still exists afterwards, usually wound up or kept as a shell, holding anything not picked up, including debts nobody mentioned.

In a share purchase, the buyer acquires the shares in the company that owns the business. The company does not change; only its owner does. Because the legal entity itself changed hands, every asset, contract and liability already inside it travels with it, known or not.

Liabilities: why most buyers start here

This is usually the deciding factor. A company is a separate legal person. Buy its shares, and you step into its shoes entirely, including a tax enquiry nobody mentioned or a warranty claim from three years ago. Our due diligence checklist for a first acquisition exists largely because of this: in a share purchase, what you do not find before completion becomes yours after it.

An asset purchase lets the buyer draw a line and only take what is listed, but that is not a complete shield. A seller can be asked to settle unwanted liabilities before completion, warranties can cover anything missed, and some obligations, particularly to employees, can follow the assets regardless of what the agreement says. "Asset purchase" describes what is bought, not a guarantee of what is left behind.

Contracts, leases and licences: who has to say yes

An asset purchase has to move each contract individually. Many commercial contracts, and almost all leases, restrict assignment without the other party's consent, so if a landlord, key supplier or large customer will not agree, that contract may not transfer, whatever the buyer and seller agree between themselves.

A share purchase avoids reassigning anything, because the contracting party, the company, never changes. That is its main practical attraction when a business depends on licences or a lease that would be difficult to move. It is not a complete escape from third-party consent, though: many leases, loans and larger customer contracts include a change-of-control clause triggered by exactly this kind of sale, so the landlord or lender still gets a say, just through a different clause.

Employees: what actually decides whether UK TUPE applies

In the UK, the Transfer of Undertakings (Protection of Employment) Regulations, known as TUPE, protect employees when the business they work for changes hands. GOV.UK's own guidance states that employees may be protected under TUPE when a business changes owner, covering both business transfers and service provision changes; the size of the business is irrelevant, though the part changing hands must be in the UK.

The common assumption, that a share purchase avoids TUPE while an asset purchase triggers it, gets the mechanism backwards. In a share purchase, the employing company does not change at all, so the question TUPE asks, has the identity of the employer changed, does not really arise. In an asset sale, TUPE turns on the facts of what transfers, not the label on the agreement: broadly, whether an organised economic entity that keeps its identity has moved to the buyer. A sale of the whole trade as a going concern is likely to count; a sale of a few individual assets with no continuing operation attached is less likely to. This is fact-specific, and GOV.UK itself points buyers and sellers who need to settle the question to Acas, Citizens Advice or a trade union representative rather than answering it on the page. This section describes UK law only, rules change, and you should check current GOV.UK guidance and take employment law advice before relying on it.

Tax: pulling buyer and seller in opposite directions

United Kingdom. A buyer in a share purchase pays Stamp Duty on the shares: 0.5% of the price, rounded up to the nearest £5, via a stock transfer form sent to HMRC within 30 days of signing (GOV.UK, Tax when you buy shares). An asset purchase carries no Stamp Duty on the assets themselves, though Stamp Duty Land Tax can apply if property is included, and VAT is normally due on the assets sold unless the deal meets the conditions for a transfer of a business as a going concern, in which case VAT does not apply to those assets (GOV.UK, VAT Notice 700/9). On the seller's side, an individual disposing of qualifying shares may be able to claim Business Asset Disposal Relief, taxing qualifying gains at 18% for disposals on or after 6 April 2026, up to a lifetime limit of £1 million, rather than the standard Capital Gains Tax rates (GOV.UK, Business Asset Disposal Relief; GOV.UK, HS275 helpsheet). No comparable relief exists on a company's own gain from selling its assets, one reason sellers often prefer a share sale. These are current UK rules; rates and thresholds have moved before and will again, so check current GOV.UK guidance before relying on any figure here.

United States. In an asset purchase, both buyer and seller generally must file IRS Form 8594, allocating the price across set categories of assets, from cash through to goodwill (IRS, Instructions for Form 8594). That allocation sets the buyer's basis for future depreciation and shapes how the seller's gain is taxed, which is why the two sides often disagree over how the same price is split between categories. A share purchase does not get this basis step-up by default, but a joint election can sometimes bridge the gap: under section 338(h)(10), the buyer and sellers of a qualifying S corporation or certain corporate subsidiary stock can jointly elect, on IRS Form 8023, to have the sale treated for federal tax purposes as if the company sold its assets and liquidated, while it remains a share sale in every other respect (IRS, Instructions for Form 8023). This election is narrow and not available to every seller, so raise it with a tax adviser rather than assuming it into a deal.

A worked example

The figures below are an illustration built for this article, not a real transaction.

The same business can sit behind either row. What differs is who holds the shell, the VAT position, and the basis the buyer carries forward, not the price itself; the £500,000 figure does not change with the structure. See how to value a small business for how that number gets set before structure is even discussed.

What to do before you agree a structure

• List what the deal actually requires you to inherit: contracts, leases, licences, open litigation, tax enquiries. That list, more than preference, should drive the choice.
• Ask your solicitor and accountant to model both structures against the real business, including their own fees; reassigning a dozen contracts can cost meaningfully more to execute.
• Work out early whether you are borrowing to fund the purchase. A lender will have its own view of which structure it will support; see how small business purchases are funded for what lenders typically ask for.
• Treat the structure as part of the price negotiation, not a formality signed off afterwards. Whoever wants a given structure is usually asking the other side to give something up, and that is worth a number.
• Get a second opinion on the structure before it is locked into a letter of intent, not after. That is a large part of what the Republic of Investors community exists for.

Common questions

Is a share purchase always better for the seller? Usually, but not always. UK sellers who qualify can tax part of their gain at a reduced rate through Business Asset Disposal Relief, and the exit is cleaner. Against that, a buyer taking on unknown liabilities in a share deal may offer less, or ask for more warranties, so the advantage is not automatic or free.

Does TUPE always apply to an asset purchase? No. It depends on whether what transfers is an organised economic entity that keeps its identity, not on what the parties call the agreement. A sale of a whole trade as a going concern is likely to engage TUPE; a handful of assets with no ongoing operation attached may not. Get specific UK employment law advice rather than assuming either answer.

Do I pay Stamp Duty on an asset purchase? Not the Stamp Duty that applies to shares, since none change hands. Stamp Duty Land Tax can still apply if property is part of the deal, and VAT can apply unless the transfer qualifies as a going concern under VAT Notice 700/9.

Can a buyer insist on an asset purchase if the seller wants a share sale? It is negotiable, not automatic, and either side can walk away. A licence or contract that genuinely cannot be assigned can make a share purchase the only workable route, whatever the tax position would otherwise favour.

Does the choice of structure change what the business is worth? Not the earnings the price is based on, but it changes what each side nets from that price, through tax, costs and retained risk. Structure is usually agreed early, then revisited once due diligence shows what is actually being inherited.