Mergers and acquisitions" is a term used to describe the mergers, acquisitions and disposals of companies and businesses. There are two ways in which this is normally done, share sale and asset sale. In a share sale, an incorporated business (i.e. a company) is bought and sold. This will include all of its assets, liabilities and employees. In a business sale, only specified assets are sold. Liabilities will remain with the seller unless expressly accepted by the buyer.

The main differences between a share sale and asset sale are:

Continuity

• Company sale - the company's legal identity remains unchanged, so there will be little effect on existing contracts and relationships.
• Asset sale - the business transfers to a new legal entity. Existing contracts will have to be transferred to the buyer (which usually requires the third party's consent.

Assets

• Share sale - the assets belong to the company and will thus be sold with it. The seller will retain no benefit in them.
• Asset sale - only those assets which are expressly sold will transfer to the buyer. The seller will retain ownership of anything not expressly sold

Liabilities

• Share sale - the liabilities (including tax) are those of the company and will remain with the company. The seller will only have any ongoing responsibility if the share sale agreement expressly provides so.
• Asset sale - the liabilities (including tax) are those of the seller and will remain with the seller. The buyer may accept some of the liabilities.

Stamp duty

• Share sale - the sale of shares attracts stamp duty at a rate of 0.05% of the value paid for the shares.
• Asset sale - in general, only land will be subject to stamp duty, at rates varying from nil to 4%.

VAT

• Share sale - no VAT.
• Asset sale - not payable if the sale is of a business as a going concern.

Employees

• Share sale - there is no change in employment. All employees and all liabilities relating to them remain with the company.
• Asset sale - Employees may or may not transfer from seller to buyer, depending on the circumstances of the sale, but the general rule is that if the sale is of a business or part of it, and there are employees whose work is mainly connected with that business or part of it, then those employees will automatically transfer from seller to buyer by operation of law. It is not possible in law to avoid this, and the buyer will take the employees as if they had always been employed by the buyer, including all pre-existing liabilities.

There may also be tax implications for both buyer and seller in deciding whether to deal with an acquisition or disposal as a share sale or asset sale. Both seller and buyer are always strongly advised to seek specialist tax advice before taking this decision.

Mergers are often dealt by one of these two methods, or a combination of them (such as one of the merging parties effectively "swapping" its assets for shares in the other).

Mergers and acquisitions are complex transactions, requiring detailed and in depth due diligence, so that the buyer feels that they know what they are buying, and involving comprehensive contracts.

Healys has extensive experience and expertise in advising on mergers and acquisitions at all stages, from initial advice through due diligence and complex contract drafting and negotiation, to completion of the transaction and post-completion matters. We take a realistic and commercial approach to a client's needs, always ensuring that we understand the commercial aims of the transaction.