Share sale or business sale? 3: What are you trying to sell?

 

May 2025

Rating system:
Reading time (1-10 minutes): 2
Sophistication level (1 (idiot) – 10 (expert)): 4
Entertainment value (1 (turgid) – 10 (side-splitting)): 4

This is the third in my series of Guides in which I explain lots of ways in which company sales and business sales are different and give some food for thought as to what you need to cover, whether you are selling or buying, to ensure you don’t miss anything or mess things up. You should ideally be aware of all this if you are a business owner who might ever want to sell (or buy) a business (or a company…).

This third Guide focusses on some of the things to think about based on what you are actually trying to sell (ie what are you selling and how do you transfer it?)

 

Share sales

This is where share sales are very simple. To sell a company you just need to sell the shares in it. The shares are what prove that the shareholders own the company.

As a rule, a change of shareholder makes no difference to the company itself. It just carries on as it was.

BUT, a buyer has to be very careful that the target company doesn’t have any arrangements with third parties which could be impacted by the share sale. Main risks include contracts with third parties (such as lenders, suppliers, customers, licensors or anyone else) which include ‘change of control’ provisions which mean that the third party can terminate the contracts (or worse) if the ownership of the company changes.

There may also be regulatory risks where the company’s right to carry on its business depends on regulators being happy that the owners are ‘fit and proper’.

Selling shares is simply achieved by each selling shareholder handing over a signed share transfer form. The company’s directors need to approve the share transfers (which can raise issues, depending on what the company’s Articles of Association say about what is needed). Of course, the buyer will usually want to buy all the shares, so all the shareholders will need to agree to sell (as to which, see my previous Guide).

The share transfer forms need to be stamped and stamp duty (0.5% of the purchase price) paid (which can raise issues if the buyer is not just paying in cash or if there are different types of earn-out payments involved).

Once stamped, the change of shareholders needs to be registered in the company’s statutory books, showing the buyer as the new owner. The statutory books provide the definitive evidence that the buyer is the new owner. The buyer needs to carefully check that they were written up properly before the sale, to ensure that the sellers were actually the owners and entitled to sell. I have seen deals fall apart where the books were not written up properly over the years, and other deals which have been delayed for up to a year or more where the company had to go through a court procedure to get its statutory books corrected.

A key distinction to understand is that a company is run by its directors, not by its shareholders. Once the buyer has a controlling shareholding in the company, it can control the company’s board of directors by removing existing directors or appointing new ones.

Business sales

This is where business sales are far more complex than share sales. A company (NOT its shareholders) owns all sorts of different assets. The ownership of each asset has to be separately transferred from the company to the buyer. The selling company and the buyer can cherry pick what they want to include in the sale. Anything the buyer does not buy stays in the ownership of the selling company.

As well as all this, much of a company’s business revolves around contract law. Any third party which does business with the company only has a contract with that company, not with anyone who might want to buy the business of the company. So as a general rule the seller can’t simply transfer to a buyer all of its arrangements with its customers, suppliers, licensors, landlords or any other third parties. It’s more complicated than that.

So the sale agreement needs both to set out firstly which assets the parties are agreeing to include as part of the deal, and then secondly how they are to go about transferring these assets. The first part can be set out in various ways, ranging from very general (eg ‘all assets owned or used by the seller company other than [ ]’), or very specific, which can go as far as attaching detailed schedules listing specific assets of different categories being included or excluded in the sale, down to detailed inventory lists, and lists of customer contracts. The second part depends on the type of each asset. Some can be transferred by simple ‘delivery’; others may need more formal transfer documentation such as assignments, novations or deeds of transfer..

Most business sale agreements break the assets being sold down into categories, and may then apply a combination of the general approach or the specific approach in relation to each category. For example, the agreement could include a schedule listing plant and machinery to be sold, but could specify whether or not all other plant and machinery owned and used in the business but missing from the list is also to be included.

The main categories of assets are as follows.

-Goodwill.
-Business information and records
-Stock
-Book debts (these are usually included in a sale, but not always)
-Benefit of business contracts. This can be broken down into various different types of contracts, or even listing specific contracts (with other specific contracts being specifically not included). Examples include contracts with customers; contracts with suppliers; hire purchase and leasing contracts; and all sorts of other contracts, eg distribution, franchise, licensing, joint venture, and so on
-Intellectual property rights
-IT and IT systems
-Social media and website rights
-Plant and machinery
-Office equipment
-Vehicles
-Shares in subsidiaries
-Premises

The sale agreement needs to be carefully worded to cover each of these categories. A future Guide will give a fuller breakdown of what might need to be involved in ensuring whether any of the assets in each of these categories ends up being properly transferred.

The sale agreement will also usually specify various categories of assets which are specifically being excluded from the sale. This could include:
-Cash (usually not included)
-Book debts (sometimes included, sometimes not)
-Insurance claims

 

That’s all for now. The next Guide in this series will focus on some of the many differences between share sales and business sales as regards what liabilities the buyer is taking on as part of the deal.

If you want to see any of my previous Guides on company sales (or on shareholder arrangements and joint ventures) click HERE

What next? Contact me for a complimentary business sale consultation.

If you would like to discuss any of the issues raised in this Guide or any other issues relating to the possible sale of your business (or company!) please feel free to email me at andrew.james@onhandcounsel.co.uk to arrange a complimentary consultation where I can help you to identify what might be involved and how I can help. This will help you to avoid some of the pitfalls to which you might otherwise be exposed, and give you the peace of mind of knowing that you have an approachable competent corporate lawyer ONHAND who can provide you with experienced, effective and cost-effective advice and assistance.

Would you like to receive further Guides and other published articles containing legal updates and tips? If so, click below…
Sign up for more Guides and legal updates