Selling a business as an asset sale

Yes, absolutely. This is a very common commercial arrangement and it is important to understand the distinction clearly because the legal, tax, and practical consequences are quite different depending on which route you take.

The two main routes for selling a business:

1. Share sale: You sell the shares in the company. The buyer takes over the company itself, including all its assets, liabilities, contracts, employees, and history. The company continues as the same legal entity, just with a new owner.

2. Asset sale (also called a business sale): You keep the company but sell some or all of the underlying business assets. This might include stock, equipment, goodwill, intellectual property, customer lists, the trade name, premises, and the benefit of contracts. The company remains yours (or is later wound up or kept dormant), and the buyer receives only the specific assets and rights transferred to them.

It sounds like you are asking about the second route, and yes, this is entirely possible and in fact very commonly done, particularly for smaller businesses.

Key considerations with an asset sale:

Contracts: Most commercial contracts cannot simply be transferred to a buyer without the other party's consent. You would need to check whether key contracts, such as leases, supply agreements, or customer contracts, contain provisions about assignment or change of control. Some contracts will need to be novated, meaning the original contract is replaced with a new one between the buyer and the third party.

Employees: If employees are engaged in the business being sold, the Transfer of Undertakings (Protection of Employment) Regulations 2006, commonly known as TUPE, will almost certainly apply. This means affected employees transfer automatically to the buyer on their existing terms and conditions. Both seller and buyer have information and consultation obligations under TUPE, and getting this wrong can be costly.

Liabilities: One of the perceived advantages of an asset sale for a buyer is that they generally do not take on the company's historic liabilities, except where TUPE applies to employees or where specific liabilities are assumed under the sale agreement. However, there are exceptions, and the sale agreement should be very clear about which liabilities transfer and which remain with the selling company.

Tax: From the seller's perspective, an asset sale can have different tax consequences compared to a share sale. When a company sells assets, it is the company that receives the proceeds and may pay corporation tax on any gains. If you then want to extract the money from the company, there may be further tax to pay, for example through dividends or by putting the company into members' voluntary liquidation. A share sale, by contrast, is typically a disposal by the shareholders personally, and entrepreneurs' relief (now called business asset disposal relief) may reduce capital gains tax to ten per cent on qualifying gains up to the lifetime limit, currently one million pounds. The interaction of these taxes can make a significant difference to what you end up with in your pocket.

Goodwill and intellectual property: You should think carefully about how goodwill, brand names, domain names, and any intellectual property are dealt with. These are often the most valuable parts of a business and need to be properly assigned.

The sale agreement: An asset sale agreement (sometimes called a business purchase agreement or business transfer agreement) will typically include schedules listing the specific assets being transferred, details of the price and how it is allocated across different asset categories, warranties and indemnities from the seller, provisions about employees, restrictive covenants preventing you from competing with the business after the sale, and completion mechanics.

Practical steps:

1. Clarify exactly which assets and parts of the business you want to sell and which you want to retain.
2. Identify any contracts, leases, licences, or regulatory permissions that will need consent for transfer or novation.
3. Consider the employee position and whether TUPE applies.
4. Get proper tax advice on the structure of the deal before you agree heads of terms, because once the structure is agreed it can be difficult and expensive to change.
5. Have a properly drafted sale agreement prepared.
6. Think about what happens to the company after the sale. Will it continue trading, go dormant, or be wound up?

This is one of those areas where the legal, tax, and commercial aspects are closely intertwined, and the order in which you make decisions matters. Getting the structure right at the outset can save a great deal of money and difficulty later.

If there is a particular aspect of the process you would like to explore in more detail, I am happy to go further.