Asset Sale v Share Sale: Buyer Beware
In our previous post on the M&A series, we have explored various types of M&A transactions, including the acquisition of assets and shares in a company.
Both types of transaction are common approaches used for the acquisition of businesses in Malaysia. Your selection between these approaches should align with your specific objectives and goals for the transaction. Allow us to break down the 3 key factors/differences for your understanding:
1. Assets and Liability📦
In an asset acquisition, you get to choose the specific assets you wish to purchase. These assets may include both tangible and intangible assets (such as ongoing contracts, intellectual properties, equipment, real properties, etc.). The advantage of an asset acquisition is that you get to purchase the assets that you intend to acquire and exclude all the liabilities of the company (such as liability from potential litigation, tax penalty, breach of contract etc.).
In a share acquisition, you take over the entire business including all the assets and liabilities of the company. As a buyer, your exposure to liability is higher and it is customary that you mitigate your risk through a rigorous due diligence process and get the necessary warranties and indemnity from the vendors.
2. Business Continuity ▶️
In an asset acquisition, there is no continuity of business as you are merely purchasing specific assets from the company and do not need to assume the business operations. Depending on the type of assets to be purchased, there are many logistical, administrative and timing issues to be considered such as the assignment or novation of contracts from different parties.
In a share acquisition, you would assume control of the entire company including all the assets and liabilities through ownership of the shares. Therefore, it usually involves minimal to no disruption to the business operations and thus is a simpler and quicker transaction than an asset acquisition.
3. Stamp Duty 📐
In an asset acquisition, stamp duty payable for asset transfer is either fixed at nominal sum or calculated at the ad valorem rate of up to 4% of the amount of money value of the consideration or the market value of the asset, whichever is higher, depending on the type of asset being transferred.
In a share acquisition, stamp duty is payable on an instrument of transfer and it is calculated at the rate 0.3% of the price or value of the shares on the date of transfer (i.e., consideration paid for the share acquisition or net asset value of the shares), whichever is higher.
With a better understanding of these key differences, you can better identify the transaction that suits your business objectives. To ensure the acquisition is smooth and successful, it is crucial to consult your advisers to effectively plan and structure your transaction.
Should you have any queries on the above, feel free to contact us for a free consultation.
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