A business may be acquired by way of share purchase or asset purchase. Under a share purchase, the buyer takes over ownership of the company carrying on the business (the target company), which comes with all of its assets, obligations and liabilities (whether or not the buyer was aware of them). Under an asset purchase, the buyer selects the assets and liabilities it wishes to acquire from the seller (explicitly excluding those which it does not wish to acquire) and purchases them, together with the business in which those assets are used. It does not acquire the company carrying on the business. An asset purchase is therefore also commonly known as a 'business purchase'.
A decision to proceed by way of share purchase rather than asset purchase will be influenced by an assessment of several factors, including:
A seller will generally prefer to sell shares rather than assets. A share sale relieves it of all liabilities (known and unknown) associated with the target company. However, for an agreed period following the sale of the shares, the seller will remain liable to the buyer with respect to the target company's business and affairs pursuant to the warranties and indemnities negotiated as part of the transaction (subject to specific agreed limitations on the seller's liability). By contrast, a buyer may prefer to avoid any risk of acquiring unknown or unquantifiable liabilities by careful selection of the assets and liabilities it will acquire.
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