Corporate Versus – Share deal vs. Asset Deal
Corporate Versus: Key Concepts, Blurred Lines n°2
What are we talking about ?
Share deal
A transaction involving the acquisition or transfer of the shares of a company or a group of companies.
Asset deal
A transaction involving the acquisition or transfer of all or part of a company’s assets (and sometimes certain liabilities). These may include tangible or intangible assets such as buildings, facilities, inventory, trademarks, patents, and licenses.
Advantages of the Asset Deal and the Share Deal
Asset Deal
- Selection of assets/liabilities to be acquired
- Better protection against hidden liabilities
- Possibility of transferring only part of the business or branch of activity and only certain employees
- May be appropriate in the event of the seller’s insolvency
- A lighter due diligence
Share deal
- Simpler procedure at first glance (share transfer)
- Full continuity of the business
- Includes all contracts, including employment contracts
- Limited liability of the shareholder
- Attractiveness for the seller who is normally released from its commitments
Disadvantages of the Asset Deal and the Share Deal
Asset Deal
- The acquisition process may be somewhat cumbersome, depending on the assets being purchased.
- Risk of disruption in continuity (certain assets do not transfer automatically): some contracts are non-transferable or require the prior consent of the creditor(s)
- Transfer of employees: If the activity constitutes an “autonomous economic entity”, employment contracts transfer automatically to the buyer, who cannot select only the useful employees without legal risk.
- Potential loss of certain tax benefits
Share Deal
- More extensive due diligence (accounting and tax compliance)
- The existence of financing and change-of-control provisions may trigger early repayments, require third-party consents, prompt contractual renegotiations, or even result in termination of contracts, all of which increase the cost, complexity, and risk of the transaction.
- The buyer takes on all existing employment risks (disputes, employee protections, HR obligations and future costs), regardless of whether there is a legal change of employer.
- Exposure to all liabilities
Due Diligence: Different approaches are used depending on the nature of the transaction
The due diligence process consists of reviewing and analysing a target company or the transferred assets.
In most cases, due diligence is carried out at the request of the potential buyer to accurately assess the risks associated with the investment. It involves gathering and analysing all the information necessary to identify the strengths and weaknesses of the target company or to verify the terms and conditions of the transfer of the acquired elements.
It enables the buyer to determine whether there are any issues that could prevent the transaction from proceeding, or to negotiate or renegotiate the purchase price. It also serves as a basis for securing the purchase agreement (representations and warranties, indemnification, liability guarantees, etc.).
Key Points and Risks
Share Deal
- Risk related to the ownership of the transferred shares.
- Tax risk Legal
- Legal risk
- Accounting risk
- Ongoing litigation Tax
Asset Deal
- Risk related to the valuation of the asset
- Risk related to asset ownership
- Risk related to the transferability of the asset
- Risk related to the transferability of the asset
- Risk related to the transfer of the asset
Drafting of Contractual Documents
Share deal
A broader scope covering all aspects of the company:
- Letter of Intent
- Share Transfer Deed (including warranties from the sellers or beneficial owners of the sellers)
- Management agreements (if former directors remain in place) / revocation/resignation documents
Asset deal
Limited scope to the transferred assets/obligations:
- Letter of intent
- Sale agreement
- Service agreements (if the seller continues to provide services related to the transferred activity)
- Notarial deed (in the case of real estate transfers)
Conclusion
In conclusion, the choice between an asset deal and a share deal depends primarily on the strategic, tax, and legal objectives of the parties involved.
While an asset deal offers greater flexibility and better risk control, a share deal enables a faster and more comprehensive transfer of the business.
It is therefore essential to analyze each situation on a case-by-case basis in order to select the most appropriate structure.
For any questions regarding a share deal, an asset deal, or corporate law more generally, please do not hesitate to contact us:
y a person who lacks the authority to act on behalf of the company would not validly bind the company.
➡️For any questions regarding corporate law, please contact Nicolas Bernardy ou Sébastien Rimlinger.