12/6/2017 | Childcare & Education

Share vs asset sales: what you need to know

Choosing to sell your childcare setting is often a massive decision for many owners and one that is not taken lightly.


In order to be fully prepared for a sale, there is a lot to consider if you own the freehold. Do you sell the property or retain the freehold creating a lease? Who is the right agent that will work with you to get the best price possible while ensuring you are happy with the buyer? Is now the right time? Many owners are often unaware of the options available to them if they own a limited company and how this impacts the structure of their sale. 

There are two ways to sell your business; a share sale or an asset sale and there are elements to consider with both. 

A share sale involves buying the entire entity of the limited company, which includes all assets, liabilities and obligations whether they are aware of them or not. Once the transaction is complete, the buyer assumes responsibility for the whole company. Whereas an asset sale, when you have a limited company, involves purchasing the assets from the limited company that owns them.

Within a share sale, you as an owner are then free from further obligations relating to the business. Throughout the process you will have fully disclosed and provided warranties against the information you have shared about the history of your business. Furthermore, a share sale would mean a change of directorship rather than a completely new entity. This usually makes the Ofsted application process much faster than the 28 weeks associated with full Ofsted registration, ensuring a smoother sale.   

Another advantage of a share sale for the owner is entrepreneurs’ relief. If the shares are sold for more than the seller paid for them, there is often a chargeable gain to this amount. So long as the owner has been a director of the company and holding more than 5% of its ordinary share capital for a year before disposal, the owner can benefit from a capital gains tax rate of 10%. 

Selling is a very personal experience for owners of a childcare business and parents and staff will be a huge consideration. A share sale enables continuity to the business, whereas sometimes within an asset sale it may not be possible to transfer some assets or agreements without consent of third parties.

Despite these positives, there are also some disadvantages; the level of due diligence involved throughout the legal process is far lengthier and as a consequence can be more expensive. Furthermore, an asset sale is often the preferred route for a buyer, especially if they are obtaining bank funding as a share sale also involves greater due diligence for bank solicitors too. Within an asset sale, only the assets and liabilities identified in the agreement will be taken on by the buyer and so any hidden liabilities stay with the business and the buyer will no longer be responsible for the business’ previous actions. 

An asset sale allows the owner to choose which assets they wish to sell and keep. Whereas within a share sale, if retaining some assets is desirable, this could result in having to transfer assets out of the business which can lead to additional costs and tax charges. 

This is just a taste of the factors which should be considered when deciding on the best route for your business and there are a number of pros and cons to each. We would advise seeking proper advice from your agent, accountant and commercial solicitor prior to coming to the market. This will allow you to make a well informed decision and one that is right for your business.