Share Deal vs. Asset Deal in Business Sales and Purchases in Switzerland

When buying or selling a business in Switzerland, one of the crucial decisions is whether to structure the transaction as a share deal or an asset deal. Each approach has distinct legal, financial, and tax implications that can significantly impact the outcome of the transaction. This article provides an in-depth comparison of share deals and asset deals, highlighting their benefits, risks, and key considerations to help you make an informed choice.

1. Understanding Share Deals

Overview: In a share deal, the buyer acquires shares of the target company, effectively taking ownership of the entire business, including its assets, liabilities, and ongoing contracts. This type of transaction is common when the buyer intends to continue operating the company as a whole.

Key Features:

• Ownership Transfer: The buyer becomes the new owner of the company by purchasing its shares, maintaining the company’s legal structure and all existing relationships.
• Continuity: Share deals provide continuity, as the business operates under the same name and legal entity without disruption to contracts or customer relationships.
• Tax Considerations: Share deals may offer tax advantages, such as deferred tax liabilities or the preservation of tax loss carryforwards. However, the buyer also assumes the company’s tax history, including any potential liabilities.

Benefits:

• Simplicity in transitioning operations, with minimal impact on employees, customers, and suppliers.
• Potential tax advantages, such as deferred taxation on capital gains.
• Retention of the company’s existing contracts, licenses, and permits without the need for renegotiation or reissuance.

Risks:

• The buyer inherits all liabilities, including potential legal claims or hidden financial issues.
• Complexity in due diligence, as the buyer must thoroughly review all aspects of the company’s operations, financials, and compliance history.
• Possible assumption of unfavorable contracts or obligations that are difficult to exit.

2. Understanding Asset Deals

Overview: In an asset deal, the buyer purchases specific assets of the target company, such as property, equipment, inventory, and intellectual property. The buyer does not acquire the company itself, allowing for more selective acquisition of assets and exclusion of unwanted liabilities.

Key Features:

• Selective Acquisition: The buyer can choose which assets and liabilities to acquire, tailoring the transaction to fit strategic needs.
• Fresh Start: The buyer typically establishes a new legal entity to operate the acquired assets, providing a fresh start without the historical liabilities of the target company.
• Tax Implications: Asset deals may involve higher upfront taxes, such as VAT on transferred assets, but allow for a step-up in the tax basis of acquired assets, which can provide future depreciation benefits.

Benefits:

• Greater flexibility in selecting assets and liabilities, allowing for a customized acquisition aligned with strategic goals.
• Reduced risk exposure, as the buyer can exclude certain liabilities and problematic contracts.
• Potential tax benefits through asset revaluation, which can enhance future depreciation deductions.

Risks:

• Complexity in transferring assets, including the need to renegotiate contracts, reissue permits, and update registrations.
• Potential disruption to business operations, as customer and supplier relationships may need to be reestablished under the new entity.
• Higher initial tax costs, such as VAT on asset transfers and potential capital gains taxes for the seller.

3. Key Considerations in Choosing Between Share and Asset Deals

Legal and Regulatory Factors:

• Share Deal: Maintains existing contracts, licenses, and regulatory approvals, but requires thorough due diligence to uncover potential legal risks.
• Asset Deal: Offers a clean slate with selective acquisition, but requires significant administrative effort to transfer contracts and licenses.

Tax Implications:

• Share Deal: Potential to retain tax loss carryforwards and defer taxes, but assumes the company’s full tax history, including liabilities.
• Asset Deal: Opportunity for tax basis step-up and fresh depreciation schedules, but may incur higher upfront taxes.

Financial Considerations:

• Share Deal: Allows for continuity in financing arrangements and customer relationships, but may require negotiating with creditors if debt is assumed.
• Asset Deal: Offers flexibility to avoid unfavorable debt terms and contracts, but may face challenges in securing new financing for the acquisition.

4. Practical Examples

Share Deal Example: A Swiss technology company is being acquired through a share deal to retain its highly skilled workforce, proprietary technology, and ongoing customer contracts. The buyer benefits from continuity and minimal disruption, but conducts extensive due diligence to mitigate the risk of hidden liabilities.

Asset Deal Example: A manufacturing firm acquires the production facilities and machinery of a competitor through an asset deal, avoiding the competitor’s legacy legal issues and unwanted contractual obligations. The buyer sets up a new entity to operate the assets, achieving a strategic expansion with reduced risk.

Conclusion

Choosing between a share deal and an asset deal is a pivotal decision in any business transaction. Each option has unique advantages and challenges that must be carefully weighed against your strategic goals, risk tolerance, and tax considerations. By understanding the nuances of each approach, you can make an informed decision that aligns with your business objectives.