*Please note that this article provides general information only and will not be applicable in all circumstances, nor should it be relied upon as legal advice. Should you wish to obtain legal advice, we recommend that you get in touch with us.

What is an asset sale?

An asset sale is used when a vendor wishes to sell some of its business assets to a buyer, while (generally) retaining the underlying business and legal ownership of the company which operates the business. This allows a buyer to acquire assets without undertaking responsibility for the liabilities of the business and gives the seller the ability to continue to operate its business (minus the sold assets).

What assets can be sold?

Asset sales can involve both tangible and intangible items. Tangible assets include a business’ plant, stock, and equipment, while intangible assets can refer to goodwill, brand value, and intellectual property such as trademarks and copyright.

Key considerations in an asset sale

Scope of agreement

If a vendor intends only to sell certain assets of its business, it must ensure that the scope of the asset sale agreement is well defined, and that all inclusions and exclusions are clear and unambiguous.

Valuation

Valuing business assets can be difficult, particularly if those assets are intangible and hard to define (such as goodwill). Expert valuers are important so that both parties can ensure they are getting a fair deal.

Warranties

From a buyer’s perspective, it is important that purchased assets are accompanied with a warranty which provides some contractually binding assurance to the purchaser as to the quality of the items being acquired. This will be more relevant for tangible assets such as stock.

Should my business conduct an asset sale?

If a vendor wishes to dispose of its entire business, it should instead pursue either a business sale or a share sale.

A business sale is a type of asset sale in which the vendor sells the entirety of the assets used in the operation of the business. Under this agreement, the ownership of the business will change hands from the vendor to the purchaser.

Meanwhile, a share sale refers to the sale of the shares of the company which owns the underlying business. The purchaser will become the owner of the company, while the business will still be owned by that company.

There are tax implications which apply to each type of sale, so it is important that a prospective seller is aware of the pros and cons of each option and can make an informed choice based on their circumstances.