Share Sale – Reasons & Advantages
Reasons for a share sale
The reason why a vendor will be so keen to sell his shares rather than for the company to sell its assets is principally tax. In essence, if a vendor sells his or her shares then, provided the company fits within certain criteria set out by HMRC, he or she will pay capital gains tax at the rate of 10 per cent on the gain between what was paid for the shares and what they were sold for less transaction costs. This is known as Entrepreneurs’ Relief. (There are some exceptions to this rule but generally in the case of a typical owner/manager, this is the case.)
On the other hand, if a company sells its assets, it will pay corporation tax on the gain it has made on the asset sale (there is no capital gains tax for companies), being the premium paid over the assets’ book value. The cash then sits inside the company and can generally only be distributed to the shareholders by way of dividend or by liquidating the company and distributing the cash reserves to the shareholders.
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