When it comes to selling and buying a dental practice, it can be hard to know whether to consider a share sale or asset sale. Both have significant benefits and drawbacks that individuals should be aware of before making a decision.
Share sale vs asset sale
A share sale is when someone buys or sells every part of a business that is run within a Limited Company. For example, if someone were to buy a dental practice, they would be taking on the business as well as any shares the company owns and debt it has accumulated. In this instance, the way the business is run will not effectively change – the company remains the same, it will just be owned by a new party.
In contrast, an asset sale is when someone buys or sells assets that are a part of a business, be that the assets of the limited company, or the assets of the sole trader or partnership. For example, the practice principal could only be interested in selling assets in terms of the NHS dental contract, goodwill and key dental equipment, rather than the company as a whole. These assets would come under new ownership, but the limited company or sole trader obligations and debts would not.
As such, share sales are usually much simpler integrations. Due to the buyer accumulating every part of the business, nothing within its daily routine needs to change either during or after the transaction. This can also be far less hassle for the new buyer as all clients, suppliers and utilities can remain in place. So long as all staff contracts are correct and in the name of the business, there is also less risk of problems with employees and associates, which serves as a great advantage to the buyer. Having little to no disruption on the patient facing side also provides a significant benefit in regards to the continuity of the business. In addition, the buyer of a share sale will also not have to pay stamp duty when acquiring a practice and, as long as they ensure the company continues to trade the same as it did before, no corporation tax will need to be paid.
Asset sales can pose fewer risks for the buyer, even if this type of sale means they will have to pay stamp duty. Given that both parties will come to an agreement as to which assets will be transferred, there should be no surprises or unexpected liabilities, such as debt or claims against the previous owner, which as a limited company would be the responsibility of the new owner.
When it comes to purchasing a limited company, buyers should be aware that this means they will become liable for everything the company retains as well as the history of that company. For example, if a historic employment claim is made, then this is the responsibility of the owner of the limited company, even if they did not own it at that time. Whilst good due diligence will mitigate some of these risks, it is always something that should be taken into account when considering this sale option. It should also be noted that legal fees for buyer and seller will be higher as part of the sale, to allow for more in-depth due diligence and additional warranties and indemnities.
Even for asset sales, whilst the buyer is not responsible for the history of the business, in dentistry and with the transfer of NHS contracts, the contract will be sold with its history intact, so if there are breaches, buyers should be aware that these carry over.
The right choice
Taking into account all these factors and more, knowing which type of sale could be better for you can be challenging. If you need reliable information or bespoke advice, turn to companies such as Dental Elite to gain all the assistance you require. With teams dedicated to giving you all the relevant information and providing support throughout the whole process, you’ll be surprised by how simple the process can be.