In many circumstances, the answer to this question will simply turn on what the seller is willing to sell, but there are advantages and disadvantages to structuring the transaction as a share sale both from the perspective of the buyer and the seller. As a general rule sellers prefer share sales.
Advantages for the seller
For the seller, a share sale will be the best way to achieve a clean break from the business. This is usually particularly important in situations where the current owners of a company are individuals who are planning to retire. Following a share sale, subject to any negotiated future obligations (for example in relation to warranties and indemnities), the seller is able to walk away from the company (and the business within it) having sold all of its actual and potential liabilities. If you go on to study the Private Acquisitions elective module you will also see that there are potentially significant tax exemptions for a corporate seller on a share sale.
Advantages for the buyer
It can be an advantage for the buyer that the entire company will be purchased including all of the assets and liabilities that it has at completion of the transaction. This will mean that the buyer will not have to spend as much time and therefore cost on ensuring that it acquires all of the assets that are required in order to run the business that it wishes to acquire. A great deal of time is spent during the negotiation of an asset sale on agreeing exactly what assets (and liabilities) are to be purchased, as well as dealing with obtaining all third party consents to transfer such assets. Where there is a change of ownership of the assets the consent of customers, suppliers, landlords and others may be required to the assignment or novation of existing contracts. On a share sale there may be certain change of control provisions (e.g. in financing documents) but otherwise there is no need for the third party consents that are needed on an asset sale.
Another advantage for the buyer is continuity – because the business carries on as it did prior to completion there will be less disruption to the business as a result of the change in ownership (e.g. ownership of properties remains the same/employees’ employer remains the same). As far as the outside world is concerned it will look as if there has been no change to the business at all.
A share sale is generally considered to be more straightforward than an asset sale as the only thing being transferred is the shares. However, because the buyer is acquiring the target company (together with its liabilities) on a share sale, more time/costs will be spent on due diligence.