ASSET SALES EXPLAINED

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In an Asset Sale the assets of the company transfer to the new owner, all the liabilities of the business are retained in the business. The deal is between the buyer and your company as the buyer is buying assets from the company. The money will be paid into the company’s bank account. After the sale you will still be the owner of the business that has little to no assets. However, the business may still have liabilities. You can use the money in the company bank account to clear any liabilities and apply to Companies House to dissolve the company.

Benefits of an Asset Sale from the seller’s point of view:

Better Negotiating Power

As buyers prefer to buy assets, the seller can often negotiate to get a higher net benefit for himself under an asset sale than a share sale. The seller is taking on the responsibility (and cost) of clearing the liabilities and doing other tidying up post-sale. He therefore deserves a higher reward.

Choice

The seller can choose which of his firm’s assets will be sold and which will be retained. So for example, if for legal, privacy or data protection reasons he can’t transfer the customer database to the buyer, he can retain that asset. Furthermore, the seller may be forced to retain assets such as social media accounts (as social media companies often do not allow the transfer of accounts).

Quicker Sale

As there is less due diligence for the buyer to perform in an asset sale, the transaction can often be completed more quickly. Furthermore, an asset sale has less chance of falling through as a result of an unexpected glitch during due diligence (and such “glitches” are not – uncommon in share sales).

Avoidance of Restrictions

It is sometimes the case that not all owners of the company are agreed on the sale of the company. The Articles of Association and/or the Shareholder Agreement may restrict the sale of shares. In these situations a sale of the company’s assets is sometimes used as a way around the restrictions.

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Benefits of an Asset Sale from the buyer’s point of view:

Easier Due Dilligience

As the buyer is taking on just the assets there is less due diligence to be done. Yes, the assets need to be thoroughly checked and the true value of the assets needs to be determined, but the buyer doesn’t need to worry about any future liabilities arising as a result of how the business was run prior to his taking over. The buyer is only responsible for only those contingencies that arise subsequent to the sale.

Tax Advantages

When the buyer takes on a set of assets from the seller’s company he may agree one figure for the whole set of assets, but when adding the assets to his own books he can allocate a higher value to those assets like stock and IT equipment on which he can claim depreciation and a lower value to assets on which he can’t claim depreciation. This can have significant tax advantages.

“Extracting” Other Losses

When a buyer acquires assets such as stock and sells them for a price lower than what he paid, he incurs a trading loss that can (generally) be set against his other profits to reduce tax liability. Similarly with losses on capital assets (if capital allowances haven’t already been claimed on them).

At Goldmann and Sons PLC we understand that you may be wary about the sale of an asset, be assured we endeavour to arm you with the right information and ensure you have access to the best providers able to create a transaction tailored to your specific needs in the most timely and efficient manner possible.

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