Asset sale vs share sale: what actually happens to staff, contracts and liabilities
Beyond the headline structure, the real practical differences in a UK exit show up in what happens to employees, supplier contracts and historic liabilities.
Two structures, two very different transfers
When a UK startup is bought, the deal is built as either an asset sale or a share sale. The basic distinction is well known: in a share sale the buyer acquires the company itself, including everything inside it, by buying shares from the shareholders; in an asset sale the buyer picks specific assets, contracts and sometimes staff out of the company, which continues to exist (and is usually wound down or repurposed afterwards) with the sale proceeds sitting inside it.
What gets less attention is how differently the two structures treat the things founders often worry about only when it is too late: employment, ongoing contracts and legacy liabilities. This is where the practical pain of a deal actually lives, and where founders need to plan long before heads of terms are signed.
Employees: automatic transfer versus employer continuity
In a share sale, employees stay employed by the same legal entity. Their employer has simply changed ownership, so contracts of employment, continuity of service, pension arrangements and accrued benefits carry on untouched. There is no need to consult formally on the transfer itself, though a change of ultimate owner can still trigger practical HR questions.
In an asset sale, employees whose roles relate to the transferred business usually move to the buyer under the Transfer of Undertakings (Protection of Employment) Regulations, known as TUPE. TUPE is designed to protect staff by carrying their existing terms, continuity of service and most contractual rights across to the new employer automatically. But it comes with obligations: informing and consulting affected employees (via representatives if there is no existing union or staff body), identifying which employees are assigned to the transferring business, and handling any proposed changes to terms carefully, since post-transfer changes linked to the transfer are heavily restricted. Getting TUPE wrong is one of the most common ways an asset deal creates unexpected cost and delay, so it needs input from an employment specialist early, not as an afterthought once commercial terms are agreed.
Contracts: continuity versus consent
A share sale does not touch the company’s contracts. Supplier agreements, customer contracts, leases, licences and loan facilities remain with the same legal entity, so in principle nothing needs to be reassigned. The catch is that many commercial contracts contain change-of-control clauses that are triggered even though the counterparty on paper has not changed, and these can require notice or consent, or give the other party a right to terminate. Checking the contract register for change-of-control provisions is a standard part of due diligence in a share sale for exactly this reason.
An asset sale is the opposite problem in a different form. Because the buyer is taking specific contracts rather than the whole company, each one generally needs to be formally assigned or novated to the buyer, which usually requires the other party’s consent. Chasing consents from every material customer, supplier and landlord can be slow, and a counterparty that senses leverage may use the moment to renegotiate terms. Deals are often structured with a completion mechanism that deals with contracts where consent has not yet been obtained, but this adds complexity and risk that both sides need to price in.
Liabilities: inherited versus left behind
This is usually the point that decides which structure a buyer prefers. In a share sale, the buyer takes the company as it stands, including known and unknown liabilities: historic tax exposures, pending disputes, warranty claims on past products, or regulatory issues. That is precisely why buyers demand extensive warranties, indemnities and disclosure in a share sale, and why sellers may need warranty and indemnity insurance to bridge the gap.
In an asset sale, the buyer chooses which assets and liabilities to take on, and can generally leave historic risks behind in the original company. This is a major reason buyers, particularly of distressed or higher-risk businesses, favour asset deals. For the seller’s shareholders, though, it means the liabilities that are not transferred stay their problem, sitting inside a company that then needs to be wound down, and any tax due on the sale is usually charged at the company level before proceeds reach shareholders, rather than being taxed once on the shareholders directly as typically happens in a share sale.
Why this matters for planning an exit
Founders sometimes assume the choice between asset and share sale is purely a tax or valuation question. In practice, the treatment of people and contracts often has just as much bearing on timeline and deal risk. A buyer wanting to avoid legacy liabilities may push hard for an asset structure, which then means the founder’s team needs to run a proper TUPE process and chase third-party consents on a tight schedule. Understanding which regime applies, and briefing staff and key contract counterparties appropriately, is worth doing well before a term sheet is signed, not once the lawyers are already drafting.
For the current detail on TUPE obligations, consultation requirements and how HMRC treats each structure, always check the official guidance rather than relying on deal folklore, since specific thresholds and procedural requirements are updated from time to time.