Share acquisitions—basic tax principles
Share acquisitions—basic tax principles

The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Share acquisitions—basic tax principles
  • Deal type and structure
  • Tax covenant and tax warranties
  • Implications of pre-transaction arrangements
  • Implications of the share sale for tax groupings
  • Restrictions on the use of trading losses following company takeover
  • Stamp duty and stamp duty reserve tax (SDRT)
  • Cross border transactions
  • Miscellaneous considerations

In a share purchase transaction, ownership of the company owning the target business is transferred to the buyer. Unlike an asset purchase, the target company retains its assets and continues to operate its business.

There are advantages and disadvantages of a share purchase for both parties.

The tax consequences of a share purchase are generally less complex for a seller than those triggered by an asset purchase. From the buyer's perspective, a share purchase will transfer the company, complete with its tax history and its contingent and potentially unexpected tax liabilities and exposures. This should encourage a buyer to conduct a thorough due diligence exercise and any issues identified should be addressed by obtaining appropriate warranties and/or specific tax indemnities.

For further details of some of the key tax considerations, advantages and disadvantages of structuring the sale of a business as a share purchase, see Practice Note: Share sale or asset sale—tax considerations.

Deal type and structure

There are commonly three different types of share purchase deal:

  1. completion accounts—the purchase price will be adjusted by reference to a set of accounts prepared as at the date of completion

  2. accounts date—the buyer will determine the purchase price by reference to a set of audited accounts (most commonly the most recent set), or

  3. locked box—the buyer will determine the purchase price by reference to a