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LPC Law Notes Private Acquisitions Notes

Choosing A Share Acquisition Or Asset Acquisition Notes

Updated Choosing A Share Acquisition Or Asset Acquisition Notes

Private Acquisitions Notes

Private Acquisitions

Approximately 339 pages

A collection of the best Mergers and Acquisitions* notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor".

In short, these are what we believe to be the strongest set of Mergers and Acquisitions notes available in the UK this year. This collection is f...

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The following is a more accessible plain text extract of the PDF sample above, taken from our Private Acquisitions Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Share Acquisition

  • PARTIES: Shareholders + the Buyer

  • The Buyer buys shares in the company that owns the business

  • Ownership of the Target Co (an any subsidiaries wholly owned by targe) is transferred to Buyer

  • Ownership of the business does not change –all assets, liabilities etc. are retained by the Target Co.

Asset Acquisition

  • PARTIES: Target Co + the Buyer

  • The Buyer acquires ownership of assets (& any agreed liabilities) that make up the business but the Co. itself remains (as an empty shell)

  • After acquisition, the Buyer either continues to run the business using the assets bought, or absorbs it into its own corporate structure.
FACTORS AFFECTING CHOICE OF ACQUISITION FOR SELLER
SHARES ASSETS

Clean break from Business

TIMING

  • No further liabilities for the Seller as the Buyer takes them all.

  • However, Buyer will require Seller to provide warranties + indemnities + guarantors as to the state of Co. & its liabilities. Thus, possible right of comeback for Buyer to remedy undisclosed problems (e.g. to bank for lending).

  • Buyer will want to carry out DD to find out hidden liabilities they may be taking on

  • Negotiate out of all liabilities to get true clean break

TIMING: Simple, sign stock transfer forms to transfer title and hand over share certificates

  • Legal liability to 3rd parties for debts and obligations of business remains with Seller. 3rd P can continue to take action against Seller.

  • Applies if Buyer has contracted to assume responsibility for certain liabilities.

  • Right of indemnity, but not always concrete. Thus, the Seller will want indemnities from the Buyer, this can be problematic if the Buyer becomes insolvent, or has not accepted liability for certain matters.

  • Better option for Buyers looking to limit their liability

TIMING: Longer and more Onerous: each asset must be transferred in the appropriate form e.g. a deed of conveyance for land, assigning patents and contracts, physical delivery of certain assets.

Possibly problematic when 3rd P consents are required, e.g. LL consent to transfer/assign leasehold property.
Employees

  • NO TUPE as No direct effect on contracts of employment as there is no change of employer. Doesn’t create potential claims in and of itself.

  • Any later redundancies or changes to contract terms will be of concern to the Buyer Not the Seller.

  • No direct interest unless warranties given in SPA.

  • TUPE applies: rights and obligations owed to each employee are transferred automatically from the Seller to the Buyer.

  • Seller has no interest in those employment contracts, except insofar as it has given warranties to the Buyer

  • If TUPE does not apply, the Seller still has obligations.

  • The application of TUPE could be a DISADVANTAGE: after an acquisition, a business is likely to undergo rationalisation, which will often require redundancies. The Buyer is now liable for payments relating to this and any claims arising out of it.
Scope of warranties & DD

  • Bigger scope as most contingent tax liabilities transfer to the Buyer.

  • Smaller scope as most contingent tax liabilities remain with the Seller
Transfer of title

  • Simpler – Stock Transfer Form. Although may need 3rd party consent to change & company contracts may terminate on change of control of company.

  • More complex - Each separate asset of the business must be transferred, 3rd party approval (e.g. landlord). Land & IP need transfer title, loose plant = title transferred by delivery.

FSMA restrictions

CONCERN for LAWYER

  • A purchase of shares qualifies as an “investment s.21 FSMA 2000. Lawyers advising must ensure they comply with FSMA 2000 if carrying out a regulated activity or that the transaction falls under an exclusion in SI 2001/544 (e.g. take over exclusion = at least 50% of Co. is being bought)

  • Shareholders must be careful not to breach s.21 FSMA when communicating with the Buyer. Thus, it is more onerous - s21 restricts issue of ‘an invitation or inducement to engage in an investment activity’

  • Includes advising/arranging purchase/sale of shares.

  • Any communication/approach about this would be caught by this restriction. Exceptions (p5)

  • Breach = sale unenforceable

  • S21 doesn’t apply.

  • However, if decision to choose assets over shares is taken at a late stage, then still have to comply even if it proceeds as a sale of assets.
Extracting cash

  • Cash paid directly to Seller as SH. Single Tax (CGT)

  • Cash paid to Co. Double Tax (CT + CGT/IT).

TAX

For SELLER

See more detailed notes p2-3

Company Owned by Shareholders (SH)

  • Consideration received directly by SH

  • Individual = CGT – chargeable asset. Each SH will be directly liable to tax on proceeds of sale.

  • Entrepreneur’s relief. EIS relief available. Emigration & share for share exchanges available

  • Not qualifying assets, so no roll over from CGT/CT (s152 TCGA 92).

Company Owned by Corporation

Company = substantial shareholding thus receives consideration directly and is liable to corporation tax on the capital gain.

The Main tax advantage here is that the gains may be exempted where Seller is disposing of a substantial shareholding in a trading company:

  • Both Selling Co and Company in which shares are being sold are trading Co.s and

  • The Seller has held at least 10% of the shares…

  • … for a continuous period of at least 12 months in previous 2 years (applies also where assets transferred intra-grow pre hire-down. See FA 2011.

  • Relief may be available under the TCGA 1992 e.g. “share for share exchange”.

  • EIS relief not available.

DOUBLE TAXATION

Tax point 1: Seller Co receives the purchase price and pays corporation tax on it (capital assets taxed as chargeable gains; proceeds from stock chargeable as income receipts). Note that Entrepreneur’s Relive is NOT available to corporate seller.

Tax Point 2:

a) Individual SH’s receive proceeds

On winding-up pay CGT on the disposal of the shares(entrepreneur’s relief available = attractive) If dividend = IT (more tax...

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