Asset deal or share deal: which structure should you choose?

There are two ways to take over a business. An asset deal consists in buying the assets themselves: the business (fonds de commerce), a property, a portfolio of contracts, a trademark. A share deal consists in buying the securities of the company that owns those assets - shares or partnership interests. The economic outcome may look similar, but the legal, tax and practical consequences are very different. The choice of structure also governs the way the price is secured.

Liabilities: what you really take on

This is the difference with the heaviest consequences. In an asset deal, the buyer selects the assets it wishes to acquire and, in principle, does not take on the seller's liabilities. In a share deal, the buyer acquires the company as it stands: its assets as well as its liabilities, including debts, disputes and commitments that are sometimes undisclosed. This assumption of liabilities explains the near-systematic use of representations and warranties in share deals.

The taxation of the transaction

The structure entails distinct registration-duty regimes. The sale of a business (fonds de commerce) is subject to duties assessed on the price, on a progressive scale. The sale of securities falls under a different regime: the sale of shares and the sale of partnership interests are not taxed in the same way, and a specific regime applies to property-holding companies. Beyond registration duties, the treatment of capital gains and the fate of carried-forward losses also differ. A preliminary tax assessment is essential.

Formalities and securing the price

An asset deal, where it concerns a business (fonds de commerce), comes with protective formalities: statutory publication, the creditors' right to object, and the price being unavailable for several months. In practice, an escrow of the price is unavoidable. A share deal, by contrast, involves lighter formalities - the sale of partnership interests or shares can be recorded by private agreement - but it offers no automatic statutory protection of payment. Securing the price rests entirely on the contractual arrangements: conditions precedent, representations and warranties, and a contractual escrow of the price.

Formalities: heavy in an asset deal, lighter in a share deal

The difference in formalism is significant. An asset deal concerning a business (fonds de commerce) requires mandatory particulars in the deed, statutory publication and the opening of the creditors' right to object. A share deal, by contrast, is completed by a simple share transfer order or a deed of transfer of partnership interests, with lighter registration formalities. This apparent simplicity must not obscure the risk linked to the assumption of liabilities, which calls for rigorous acquisition due diligence.

Summary of the differences

• Subject matter: individual assets (asset deal) versus the company's securities (share deal);
• Liabilities: in principle not assumed (asset deal) versus fully assumed (share deal);
• Formalities: publication and creditors' right to object (asset deal) versus a deed of transfer of securities (share deal);
• Guarantees: statutory unavailability of the price (asset deal, business) versus contractual representations and warranties (share deal);
• Taxation: duties on the sale of the business versus duties on the sale of securities.

Escrow, the common denominator

Whatever structure is chosen, the escrow agent secures payment. In an asset deal, it holds the price for the time needed to clear the rights of creditors and of the tax authorities. In a share deal, it ensures that the price - or a portion intended to cover the representations and warranties - will only be released on the agreed conditions. Entrusted to a lawyer, this escrow relies on the CARPA account (the French bar's fund-handling body): control of movements, a dedicated sub-account, traceability and professional confidentiality.

Hesitating between an asset deal and a share deal? Fidens secures the price whatever the chosen structure, on a CARPA account dedicated to your transaction.