When an entrepreneur or investor plans to acquire a business, a crucial question arises: is it better to buy the company’s shares (share deal) or to purchase its business assets (asset deal)?
Both approaches have significant legal and financial consequences, impacting taxation, liability, and buyer protection. This article explores in detail the benefits, risks, and safeguards involved in each option.
Share Deal: Taking Over the Company’s Entire History
In a share deal, the buyer acquires the company itself by purchasing its shares. This means becoming the owner of all assets and liabilities of the business.
In practice, the buyer gains access to:
- the client base
- equipment and know-how
- but also, existing debts, pending or potential disputes, contractual obligations,
- and sometimes hidden risks (tax, environmental, labor law issues, etc.).
Because of this, a share deal requires strong legal safeguards, such as:
Representations and Warranties (R&W)
Also known in French as Garanties d’Actif et de Passif (GAP), these clauses protect the buyer against unexpected issues. They typically cover:
- the accuracy of financial statements
- the absence of undisclosed debts
- tax, labor, and environmental compliance
Protection Against Eviction
The seller must guarantee that the transferred shares are free of third-party claims.
Guarantee Mechanisms
To ensure promises are enforceable, tools such as escrow arrangements, bank Guarantees, or insurance policies are often used.
In summary: a share deal is simpler in terms of transfer (the company remains intact), but it requires careful negotiation of warranties to protect the buyer.
Asset Deal: Focusing Only on Selected Business Assets
In contrast, an asset deal involves acquiring only identified and listed elements of the business, such as:
- customer base
- lease rights
- equipment and machinery
- brand or trade name
- and sometimes specific contracts (if allowed by law or contractual clauses).
In this case, the buyer does not take on the company’s past debts or legal disputes, making it a safer approach. However, it raises other challenges.
Defining the Scope of the Transfer
All assets included in the transaction must be clearly identified. For instance, customer or supplier contracts are not automatically transferred.
Asset Valuation
Assigning a fair value to the business is critical, based on:
- client retention and recurrence
- revenue potential
- location attractiveness
- value of equipment and infrastructure
Contract and License Transfers
Some agreements (commercial leases, employment contracts, licenses, etc.) require formal transfer procedures, sometimes with third-party consent.
In summary: an asset deal reduces exposure to historical liabilities but demands precise definition of what is included in the transaction.
Comparison Table: Share Deal vs Asset Deal
Criteria | Share Deal (Cession d’actions) | Asset Deal (Cession de fonds) |
Object | Shares of the company | Identified business assets |
Liabilities | Transferred to the buyer | Not transferred |
Formalities | Simple (share transfer) | More complex (individual asset transfer) |
Required Guarantees | High (R&W, escrow, insurance) | Lower, but strict asset definition |
Taxation | Varies depending on seller and buyer | Specific to business assets |
Complexity | Legally complex despite simple form | Administrative and technical hurdles |
How to Choose Between a Share Deal and an Asset Deal?
The choice should not be based solely on taxation. A broader analysis is needed, considering:
- Project nature: Does the buyer want a turnkey business or only selected strategic assets?
- Risk tolerance: Is the buyer willing to assume historical liabilities?
- Trust in the seller: Strong trust can ease warranty negotiations.
- Operational flexibility: Some activities (e.g., retail businesses) often require an asset deal by law.
In any case, expert guidance from M&A or business law attorneys is highly recommended to secure the transaction.
Conclusion
The difference between a share deal and an asset deal goes beyond taxation or administrative complexity. It directly impacts buyer protection and the overall balance of the transaction.
- A share deal offers continuity and control of the entire company but requires strong contractual Guarantees.
- An asset deal provides better protection against historical liabilities but demands detailed scoping and asset Valuation.
For buyers, the right choice depends on their strategy, risk appetite, and the specific assets they seek to acquire.