Glossary
Asset sale
A transaction in which the buyer acquires specific assets and liabilities of a business, such as contracts, equipment, intellectual property and staff, rather than the shares of the company that owns them.
In plain English
In an asset sale, the buyer picks what it wants from the business and leaves the rest with the selling company. The company itself stays with its shareholders, along with any liabilities the buyer did not take on. The alternative is a share sale, where the buyer takes the whole company.
Why it matters
Buyers sometimes prefer an asset sale because it lets them leave unwanted liabilities behind. Sellers usually prefer a share sale, because it is cleaner, the company's history goes with it and, in many jurisdictions, the tax treatment for individual shareholders can be more favourable. Client contracts, leases and employment arrangements may need to be transferred individually in an asset sale, which adds work and can require third-party consent.
What to watch for
- The structure is often decided early, in heads of terms, and has tax and legal consequences for both sides that need professional advice.
- In an asset sale, the seller is left with a company that still needs to be wound up or run, and with any liabilities not transferred.
- Employee transfer rules vary by jurisdiction and can apply to asset sales in ways that need careful handling.
Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.