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Buying a business in the UK

11 January 2017

This guide is intended to assist potential buyers, who are from overseas, and have not been through the process of buying a business in the UK before and want to know a little more about what to expect. English company law does not impose any restrictions on foreigners acquiring an interest in domestic companies. These notes assume that the target business is owned by a private limited company incorporated in England, with several individual shareholders.

Two ways to acquire a business: “Share Purchase” or “Business/ Asset Purchase”

There are two ways in which a buyer can acquire a business and the two are fundamentally different concepts. In a “share purchase” a buyer will acquire the shares in the company which owns the business from the company’s shareholders; whereas in a “business purchase” (also referred to as an “asset purchase” or a “business/asset purchase”) the buyer will acquire only those assets and liabilities which it specifically identifies from the company.

Why share purchase

In a share purchase all that changes hands are the shares in the company (the “Target”) which owns the business and this is effected by the exchange of one or more executed stock transfer forms for the purchase price. The buyer, to whom the shares are transferred, then owns the Target “warts and all”, including assets and liabilities which it does not know about. Examples of things which a buyer might not wish to inherit include: onerous contracts; bad debts; creditors; stock-in-trade; and onerous property (perhaps a long lease or contaminated land).

Sellers generally prefer a share purchase as this takes the entirety of the business off their hands and a share sale is often more advantageous to them from a tax perspective...

 

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