Asset Deal vs Share Deal – optimal deal structure

What is the difference between an asset deal and a share deal?

An Asset Deal is a transaction involving the assets of a company, i.e. a transaction where the subject matter consists of specific assets of the company such as property, plant and equipment, inventory, or intangible assets (e.g. trademarks). In practice, this means that the buyer acquires selected assets of the company.

A Share Deal is a transaction involving shares. The buyer therefore acquires a full, majority or minority stake in the company that owns the business in question (understood as a set of tangible and intangible assets related to the conduct of business activities). What is important here is that, upon the acquisition of the company’s shares – in practice, usually the takeover of control over the entity (company) – the new shareholders enter into the company’s ‘existing’ situation, i.e. they may manage the assets held by the company within its framework, but they must also be aware of the company’s continuing liabilities, the contracts it has entered into and its tax history.

Advantages and disadvantages of both solutions

Asset Deal

• Advantages:
  • the buyer can select specific assets they wish to acquire, thereby avoiding the assumption of unwanted liabilities;
  • the possibility of individual asset valuation;
  • generally lower tax risk, as the company’s entire tax history is not taken over.
• Disadvantages:
  • the process may be more complicated, as it requires the precise identification and transfer of individual assets;
  • the possibility of additional tax liabilities arising, e.g. VAT.

Share Deal

• Advantages:
  • simpler legal structure – the buyer acquires the entire business as a whole, including its contracts, licences and employees. This is particularly important if the buyer’s objective is not only to acquire specific tangible assets for conducting business in a given area, but also intangible assets such as a trademark, the entity’s history and its customer base;
  • no need to separate assets or renegotiate contracts with business partners. The new owners of the company’s shares step into the ‘existing’ situation, including continuing existing contracts (which may be of significant importance for ongoing cooperation with certain business partners);
  • often more favourable tax treatment, e.g. no VAT on the sale of shares;
• Disadvantages:
  • the risk of assuming hidden liabilities, e.g. tax, employment or legal liabilities (which have not been disclosed by the seller of the shares). As a rule, prior to the acquisition of shares, it is recommended to carry out due diligence – i.e. a legal, tax and financial review of the entity being acquired in order to identify legal, and financial risks – which has a significant impact on the attractiveness of the entity in question, including the sale price and possible remedial measures to be taken by the company’s current owners;
  • potential difficulties in valuing the shares and negotiating their price, as well as negotiating the terms of sale.

Key tax and legal aspects

The choice between an Asset Deal and a Share Deal entails different tax and legal consequences. The key aspects to be aware of are:

• in the case of an Asset Deal:
  • it is often necessary to account for VAT, unless the subject of the sale is an enterprise or an organised part thereof (ZCP). The VAT aspect may be significant, as VAT is a key price-determining factor, particularly for taxpayers conducting VAT-exempt activities (no right to deduct);
  • the taxpayer is the company (entity) selling the assets, the business (or its organised part). In this case, the taxable income is the difference between the sale price of the asset, the business or the organised part of the business and the tax value of that asset or the assets comprising the business or the organised part of the business;
• in the case of a Share Deal:
  • this transaction is generally not subject to VAT (VAT on transactions involving shares will only apply in exceptional circumstances). However, in the vast majority of cases, the transaction will be subject to civil law transaction tax (PCC), which the buyer will be obliged to pay;
  • income is taxed at the level of the shareholder. It is the shareholder who sells the shares and thereby generates income. For the company in which the shares are being sold, the transaction is tax-neutral;
• nevertheless, a key legal and tax aspect that every investor must consider when choosing between an Asset Deal and a Share Deal is the issue of liability for the company’s obligations and the continuity of the company’s tax history. The risk of suffering negative consequences associated with this will generally not arise in the case of an Asset Deal – as often only a specific asset will be acquired. The situation is different in the case of a Share Deal – in this respect, the new shareholders effectively continue the operations of the entity whose shares (shares), thereby assuming the risk of the company’s potential liability for the errors of previous owners – including tax errors which may result, amongst other things, in an obligation to settle tax arrears arising from incorrectly maintained tax accounts. In this area, it is crucial to conduct a thorough due diligence review of the target company, which allows for the identification of risks and the determination of which transaction structure will be more advantageous.

How to choose the optimal structure?

There is no single, definitive answer to this question.

Share deals are popular in situations where conducting business involves obtaining various licences, for example in the energy sector. For many investors, purchasing an entity ‘with licences’ will accelerate the process of ‘entering the market’.  On the other hand, asset deals may be popular among investors who have been operating in a specific market for a long time and are seeking only to expand their scale, increase production capacity, and particularly in such situations.

From a purely tax perspective and from the seller’s point of view, an Asset Deal may in practice prove less advantageous than a Share Deal. This is because income from the sale of a business is taxed once at the level of the company itself, and then again at the level of the dividends received by the shareholders. In contrast, when selling shares, only the shareholder pays income tax.

Regardless of the choice of transaction structure, both Asset Deals and Share Deals are often highly complex; for this reason, and particularly in the case of Share Deals, it is advisable to seek the support of a lawyer and a tax adviser.

Author

Mateusz Kowalski

Radca prawny, Senior Associate

I specialize in Polish tax law, particularly income taxes, as well as international tax law. My experience includes, among others. providing ongoing tax advisory services, preparing legal and tax opinions, drafting requests for individual interpretations, conducting tax reviews. I gained professional experience in Warsaw law firms.

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