An asset purchase agreement usually transfers selected business assets. A share purchase agreement usually transfers shares in the company that owns the business. The difference affects tax, VAT, liabilities, employees, contracts, leases and due diligence.
Quick Answer: What is the difference between an asset purchase agreement and a share purchase agreement?
Anasset purchase agreement(APA) is used where the buyer purchases specific, identified assets from a business. This might include goodwill, stock, equipment, intellectual property, the trading name, customer records, website, vehicles, fixtures and fittings, and specified contracts. The seller typically retains the limited company, cash, existing debts, tax history, and any assets or liabilities not specifically included in the agreement.
Ashare purchase agreement(SPA) is used where the buyer purchases the shares in the company that owns the business. The company itself continues to exist unchanged — the only difference is who owns it. That means the buyer inherits the company complete with all of its assets, contracts, employees, tax history, and liabilities, subject to the terms of the agreement.
Neither structure is automatically better. Buyers often prefer asset purchases because they can select exactly what they are acquiring and leave behind liabilities they do not want. Sellers often prefer share sales because they represent a cleaner exit from the company and can carry more favourable tax treatment. The right structure depends on the specific facts of the deal — and both sides should take tax, legal and accounting advice before agreeing which route to take.
Contents
What is an asset purchase agreement?
An asset purchase agreement is a legal contract through which a buyer acquires specific, identified assets from a business. The seller remains the legal owner of any assets not expressly included in the agreement — including, in most cases, the limited company itself.
The buyer and seller must agree and list precisely which assets are being transferred. Common categories of assets included in an APA include:
Goodwill and trading reputation
The business trading name
The website and domain name
Customer records and databases, subject to data protection rules
Stock and work-in-progress
Plant, machinery and equipment
Fixtures, fittings and furniture
Vehicles used in the business
Intellectual property, including trademarks, patents and designs
Contracts, where capable of assignment without consent or where consent has been obtained
Telephone numbers and email addresses
Social media accounts and digital presence
Software licences, where transferable
Supplier relationships
Items the seller typically retains after an asset sale include the limited company entity itself, cash held in the company at completion, book debts and trade debtors, the company's tax history and any outstanding tax liabilities, contracts that are not capable of transfer, and any personal assets of the seller that happen to be within the company.
One of the most important practical realities of an asset purchase is that every significant asset must be identified explicitly in the agreement. Anything not listed is not transferred. This can be surprisingly consequential — if a contract, licence, phone number, or piece of software is missed from the asset schedule, the buyer may not have the right to use it after completion.
What is a share purchase agreement?
A share purchase agreement is a legal contract through which a buyer acquires the shares in the company that owns the business. Unlike an asset sale, the company itself is not dissolved or restructured — it simply changes hands. The company continues to own all of its assets and to be party to all of its contracts before and after completion, exactly as before. The difference is who the shareholders are.
Because the buyer is acquiring the company in its entirety rather than selected assets, a share sale typically includes everything the company owns and owes. That means:
All assets owned by the company at completion
All existing contracts, including customer and supplier agreements
All employees, who remain employed by the same company without any change of employer
The company's bank accounts and financial instruments
All company liabilities, whether known or unknown
The full tax history of the company, including any outstanding or potential liabilities
Any litigation, disputes or regulatory issues
Licences and permits held in the company's name
Intellectual property registered to or used by the company
All debts and obligations, past and present
The critical implication for buyers is that in a share sale, due diligence must go deeper. Because the company's entire history comes with it, a buyer needs to be confident that there are no material undisclosed liabilities lurking in the company's past. This is why share purchase agreements are typically longer and more complex than asset purchase agreements, with extensive warranty provisions, a detailed disclosure letter, and often a tax deed or tax covenant addressing the company's historical tax position.
Main differences between APA and SPA
The table below summarises the main differences between the two structures. It is intended as a guide only — the real implications in any particular deal depend on the documents, the facts, and the specific circumstances of the business.
What the buyer acquires - Selected, specified assets - Shares in the company that owns the business
Historic liabilities - Generally remain with the seller unless specifically transferred - Usually remain inside the company and transfer with it
Contracts - May require assignment or novation, often needing consent - Typically remain with the company, but change-of-control clauses may require consent
Employees - TUPE may apply if the business transfers as a going concern - Employees usually remain employed by the same company without change
Lease - May require assignment and landlord consent - Company remains the tenant, but change-of-control clauses may be triggered
VAT - Transfer of a going concern (TOGC) rules may apply - Share sales are generally outside the scope of VAT
Capital gains tax - Asset disposal tax treatment applies - Share disposal tax treatment applies — Business Asset Disposal Relief may be available
Transaction complexity - Can be simpler for small or straightforward businesses - Usually more complex due to company-wide due diligence requirements
Buyer's risk profile - Can be narrower, as buyer chooses what to take on - Broader, as buyer takes on the company's full history
Seller's position post-sale - Seller may retain the company and some liabilities - Cleaner exit from the company if all shares are sold
Why buyers may prefer an asset purchase
The primary appeal of an asset purchase for buyers is control. Rather than acquiring everything the company has ever done, said or owed, the buyer selects the assets they want and leaves behind the things they do not.
Possible advantages for a buyer choosing an asset purchase include the ability to avoid inheriting historic company liabilities — tax arrears, employment claims, supplier disputes, or regulatory issues that predate their involvement. The buyer can leave unwanted debts in the company. They can exclude contracts that are problematic, unnecessary or expensive to novate. They can be selective about which assets they are actually paying for. The structure is often simpler and more appropriate for very small businesses or where the seller is a sole trader or partnership rather than a limited company.
However, asset purchases can create their own complications. Individual contracts may need to be assigned, which often requires third-party consent — from customers, suppliers, landlords or licensors — that can be time-consuming or withheld. Lease assignments require landlord consent and often involve costs and conditions. Some licences are not transferable and may need to be reapplied for by the buyer. Where staff are employed, TUPE may apply, requiring the buyer to inherit those employees on their existing terms. Customer consent may be needed for data transfers. Supplier accounts may need to be set up afresh. VAT treatment can be complex, particularly around the transfer of a going concern rules.
An asset purchase is not a guarantee of a clean start. Thorough due diligence is still required, and the legal mechanics of transferring individual assets can be as complex — and sometimes more complex — than a straightforward share sale.
Why sellers may prefer a share sale
From a seller's perspective, a share sale often provides a cleaner and more straightforward exit. Rather than having to identify, list and transfer individual assets one by one, the company passes to the buyer as a whole. The seller's obligations under the company's contracts, leases and employment arrangements transfer with it.
Possible advantages of a share sale for sellers include a cleaner exit from the company and all its obligations, the ability for contracts to remain with the company without requiring individual assignment, continuity of employment for staff without a formal TUPE process, a simpler commercial handover in terms of business operations, and potentially more favourable tax treatment — depending on circumstances, Business Asset Disposal Relief may be available on qualifying share disposals, reducing the effective rate of Capital Gains Tax.
The downside for sellers is that buyers are typically more cautious about share sales, precisely because they are taking on the company's full history. A buyer negotiating a share purchase will usually ask for more extensive warranties covering all aspects of the company's finances, tax, contracts, employment and compliance. They will require a detailed disclosure letter. They may want a tax covenant or tax deed. They are more likely to ask for a retention or escrow arrangement to cover historic risks. They will conduct deeper and broader due diligence. And they may insist on a lower price to reflect the additional risk they are absorbing.
A share sale may be the seller's preferred structure, but it can only happen on terms the buyer is willing to accept.
Tax, VAT and TOGC issues
The choice between an asset sale and a share sale has significant tax and VAT implications for both parties. Getting independent tax advice before agreeing the structure is not optional — it is essential.
VAT and the transfer of a going concern
HMRC VAT Notice 700/9 sets out the rules for when a business transfer may be treated as a transfer of a business as a going concern (TOGC) for VAT purposes. Where TOGC conditions are met, the transfer may be outside the scope of VAT, which can have a material effect on the cost of the transaction and the cash flow of both parties. The conditions for TOGC treatment are specific and must be checked carefully in each case. Do not assume that a business sale will or will not attract VAT without taking proper VAT advice.
Share sales are generally outside the scope of VAT entirely, though there are exceptions, and the VAT position on any property involved in the transaction may be different.
Capital Gains Tax and Business Asset Disposal Relief
For sellers, the tax treatment of a share sale and an asset sale can differ considerably. Business Asset Disposal Relief — formerly known as Entrepreneurs' Relief — may reduce the rate of Capital Gains Tax on qualifying business disposals. GOV.UK confirms that qualifying gains are currently charged at 18% for disposals on or after 6 April 2026, 14% for disposals between 6 April 2025 and 5 April 2026, and 10% for disposals on or before 5 April 2025. Whether a particular disposal qualifies, and whether the seller meets the relevant conditions, requires specialist tax advice.
Buyer tax treatment
Buyers also need to consider the tax implications of what they are acquiring. Where goodwill and other intangible assets are purchased as part of an asset deal, Corporation Tax treatment can depend on a number of factors. GOV.UK notes that for corporation tax purposes, intangible assets include intellectual property and business reputation, including goodwill, and that the treatment can depend on when the company first owned the intangible. How goodwill, stock and other assets are valued and accounted for in the deal structure can have long-term tax implications for the buyer that are worth understanding before heads of terms are agreed.
Employees, TUPE and contracts
Employees and TUPE
The treatment of employees is one of the most practically significant differences between an asset purchase and a share purchase.
In an asset sale, where a business or a distinct part of it transfers as a going concern, the Transfer of Undertakings (Protection of Employment) Regulations 2006 — TUPE — may apply. GOV.UK confirms that when a business changes owner, employees may transfer to the new owner on their existing terms and conditions, with continuity of employment preserved. This is not an optional step — TUPE creates legal obligations on both the outgoing and incoming employer, including the duty to provide employee information and, in some cases, to consult with employee representatives.
In a share sale, the company remains the employer throughout, so employees do not change employer in the TUPE sense. However, employee matters are still critical in due diligence — any outstanding claims, unusual contractual terms, pension arrangements or redundancy obligations need to be understood and addressed in the warranties.
Employment advice should be sought early in either structure.
Contracts
The treatment of contracts is another area where the two structures diverge significantly.
In an asset sale, contracts do not automatically transfer to the buyer. They must be assigned or novated — a process that usually requires the consent of the other party to the contract. For a business with many customer or supplier contracts, obtaining assignment consent can be time-consuming and is not always guaranteed. Change of ownership can sometimes trigger termination rights in the other party's favour.
In a share sale, the company remains party to all of its contracts — the contract does not need to be novated because the contracting entity has not changed. However, many contracts contain change-of-control clauses that are triggered by a sale of the company's shares. These may require the other party's consent to the change of ownership or, in some cases, give them the right to terminate. Key contracts to check for change-of-control provisions include customer and supplier agreements, the property lease, any franchise agreement, finance and banking facilities, software licences, and any partnership or joint venture arrangements.
A deal can fail if key contracts cannot be transferred or continued. Both buyer and seller should identify critical contracts early and understand what consents are needed.
What due diligence differs?
The scope and focus of due diligence differs between an asset purchase and a share purchase, reflecting the different risk profiles of the two structures.
Asset purchase due diligence
In an asset purchase, the buyer's due diligence should focus on what is actually being acquired. Key areas include confirming ownership and clear title to all assets being purchased, assessing the condition and value of physical assets and stock, reviewing all contracts that are to be assigned and identifying any that require third-party consent, reviewing the lease and understanding what is needed to complete the assignment, checking which licences and permits are required to operate the business and whether they transfer, understanding the TUPE position in relation to employees, assessing the data protection implications of the transfer of customer and other personal data, confirming that intellectual property being purchased is owned or properly licensed, understanding the VAT and TOGC position, and being clear about which liabilities are included and which are excluded.
Share purchase due diligence
In a share purchase, the due diligence exercise is typically broader because the buyer is taking on the company's entire history. Key areas include the company's legal and corporate history, audited and management accounts, tax compliance — corporation tax, VAT, PAYE and any outstanding or potential liabilities, existing debts and credit facilities, any pending or threatened litigation, the full contract portfolio including change-of-control provisions, employee terms and conditions, pensions and any historic employment claims, insurance coverage and claims history, licences and regulatory authorisations, intellectual property rights, data protection compliance, and any identified hidden or contingent liabilities.
Due diligence for a share purchase will generally take longer and require more adviser input than for a comparable asset purchase. The buyer's solicitors will typically produce a detailed due diligence report, and the warranty and disclosure process will be more extensive.
APA vs SPA checklist
Working through the following questions will help buyers and sellers assess which structure is appropriate for their deal and whether the key issues have been addressed.
Is the seller a limited company, sole trader, partnership or franchisee? (This affects which structures are available.)
Is the proposed deal an asset sale or share sale, and has this been agreed in heads of terms?
Has the reason for choosing that structure been documented and understood by both sides?
Have both the buyer and seller taken independent tax advice on the structure?
Has the VAT and TOGC position been checked by a specialist?
Has the TUPE position in relation to employees been considered and advised on?
Have key contracts been identified and checked for assignment or change-of-control provisions?
Have licences and permits been checked for transferability or re-application requirements?
Is landlord consent required for the lease, and has this process been started?
Has data protection advice been obtained in relation to customer data being transferred?
Are all intellectual property and digital assets being transferred clearly identified and included?
Is the allocation of debts and liabilities clearly documented?
Have warranties and indemnities been discussed and agreed in principle?
Is the completion day transfer of all assets and obligations practically workable?
FAQs
Is an asset purchase automatically safer for buyers?
It can reduce exposure to some historic liabilities, but it is not automatically safe. Assets, contracts, employees under TUPE, licences, data and VAT issues all require careful due diligence. A poorly structured asset purchase can leave a buyer with unexpected problems.
Is a share sale always better for sellers?
It can be financially and administratively cleaner, and may offer more favourable tax treatment in some cases. But buyers often require more extensive protections in a share sale, which can add complexity, cost and negotiating tension. Whether a share sale is right for any individual seller depends on their specific circumstances and should be discussed with a tax adviser.
Does TUPE apply to an asset purchase?
TUPE may apply when a business or part of a business transfers as a going concern. Whether it applies in any particular case depends on the facts, and employment advice should be taken before either party assumes TUPE does or does not apply to their transaction.
Is VAT charged on an asset sale?
Possibly, but the transfer of a going concern rules under HMRC VAT Notice 700/9 may mean that VAT is not chargeable on certain business transfers. The position needs to be checked on the facts of the specific transaction. Do not assume either way without taking VAT advice.
Which type of agreement is shorter and simpler?
There is no fixed rule. A simple asset purchase of a small business may involve a relatively concise agreement. But an asset sale of a business with many assets, contracts and employees can be just as complex as a share sale. SPAs tend to be longer because they typically include broader warranties, a tax covenant and disclosure documentation. Both types of agreement should be drafted by an experienced solicitor.
Key takeaways
The choice between an asset purchase agreement and a share purchase agreement is one of the most important decisions in any business sale. Getting it wrong — or failing to understand the implications — can have significant consequences for tax, liability, continuity and cost.
For buyers: an asset purchase gives you control over what you acquire, but requires careful identification of every asset and careful management of contracts, licences, employees and VAT. A share purchase gives you the whole company, including its history, which requires deeper due diligence and stronger legal protection.
For sellers: a share sale can be cleaner and may carry tax advantages, but requires buyers to accept more risk — meaning they will expect more warranties, more disclosure and potentially a lower price. An asset sale may be simpler in some respects but requires individual assets to be transferred and liabilities to be clearly allocated.
Neither structure is universally better. The right answer depends on the specific facts, the nature of the business, the tax positions of both parties, and the risk appetite of the buyer. Take professional advice — from solicitors, accountants and tax advisers — before agreeing the structure, and make sure the heads of terms clearly record which route has been chosen.
Related resources
Important disclaimer
Buy a Business Ltd is a marketplace, not a broker. Information, guides, checklists and examples on this site are for general guidance only and do not constitute legal, tax, financial, investment, lending, valuation, employment, data protection, brokerage or regulated advice.
Buying or selling a business involves risk. You should seek independent professional advice before buying, selling, valuing, financing, negotiating or completing a business purchase.
Sources and useful references
GOV.UK: Business transfers, takeovers and TUPE
GOV.UK: Transfer a business as a going concern — VAT Notice 700/9
GOV.UK: Business Asset Disposal Relief
GOV.UK: Corporation Tax when your company sells intangible assets
ICO: Due diligence when sharing data following mergers and acquisitions