Buying the Shares vs. Buying the AssetsMedium
Buy the company and you inherit everything it has ever done. Buy the assets and you choose — which is why the seller usually wants the first and the buyer the second.
2 min read · 432 words
The one sentence
In a share purchase the buyer acquires the legal entity, and everything inside it comes along — including things nobody has found yet. In an asset purchase the buyer acquires listed assets and assumes listed liabilities, and everything not listed stays with the seller.
Side by side
| Share purchase | Asset purchase | |
|---|---|---|
| What transfers | The entity, entire | Only what the schedule names |
| Historic liabilities | Come with it, known or not | Stay behind unless assumed |
| Contracts | Continue, unless a change-of-control clause bites | Each needs the counterparty's consent to novate |
| Employees | Stay with the entity | Frequently transfer by operation of law in Europe; rules differ elsewhere |
| Licences and permits | Usually continue | Frequently must be reapplied for |
| Complexity | Lower to execute | Higher — every item is separately identified |
| Who normally prefers it | The seller | The buyer |
Why the preferences are opposite
The seller wants a clean exit: sell the entity, and the history goes with it. The buyer wants the business without the history, because the history is the part that cannot be fully diligenced — environmental exposure, tax positions, employment claims and litigation that has not been brought yet.
That is why diligence matters far more in a share purchase: what is not found is inherited.
Where the gap gets bridged
- Warranties and indemnities in the sale agreement allocate specific historic risks back to the seller — see how to read one.
- An escrow or a holdback keeps part of the price available to meet a claim.
- Warranty and indemnity insurance transfers the exposure to an insurer, which is what allows a seller to exit cleanly and a buyer still to have a claim.
- An earn-out defers part of the price against performance — a different risk, but the same instinct.
The tax pull, in both directions
Tax frequently decides it. In many systems a buyer prefers an asset purchase because the price can be allocated to assets that are then depreciated or amortised — a real cash benefit over years. A seller frequently prefers a share sale because of participation exemptions or capital gains treatment that an asset sale does not attract.
Which side wins that argument is usually settled by adjusting the price, not by changing the structure. The specifics are jurisdictional and change; the direction of the pull does not.
The related structure
A carve-out is an asset purchase with an extra problem: the business being sold has never existed on its own, so it has to be constructed — separate accounts, separate contracts, transitional services from the seller — before it can be transferred at all.