Sander Scholten is medeoprichter van WebshopOvername.nl en specialist in de financiële en operationele kant van Webshopovernames.
When acquiring or selling an online business, you have the option to transfer the business by means of a share transfer (you sell a company) or by means of an asset transfer (you only sell the assets of a business). Both transactions can be performed in several different ways, but in essence these are the two ways a transfer is executed. It is good to understand in advance the pros and cons of each type of transfer, as this aspect is often part of the negotiations and can have a serious fiscal aspect.
On this page we will explain what is meant by an Asset Transfer and a Share Transfer. Both types of transactions will be explained with the pros and cons for both the buyer and the seller of an online business.
By means of an asset transfer, only part of a company's assets (and liabilities) are transferred. So Company 123 Ltd sells the assets (and sometimes debts) from its online business, such as Stock, Web Store, Domain Name and Supplier Contracts. Things like bank accounts, balances and debtors / creditors are usually not taken over but retained by the seller. (Note: in case of a sole proprietor selling or an individual, there is no choice and a transaction is always executed by means of an asset transfer, because there are no shares)
One of the most difficult aspects of an asset transfer is that an acquisition agreement must be very clear what exactly is sold: All domain names, intellectual property, inventory (products + numbers), trademarks, other rights / obligations, agreements and not to be forgotten: All accounts and logins (not just from the web store, hosting, domain name provider, but also of each sales channel like Amazon, eBay etc.).
Another disadvantage of an asset transfer is that the buyer often has to re-negotiate contracts with customers and suppliers. And some of them will want to reconsider the terms of the agreement in a new situation (for example, supplier discounts, payment terms, etc.).
There are also benefits to this type of transfer for a buyer: First of all, it is possible to leave parts of the business in the selling entity, which will substantially decrease the risks for the buyer. The second advantage is that the buyer can amortize the acquired assets and thereby realize a profound tax advantage.
On the other hand, the seller however wíll be charged by the tax authorities (see below why a share transfer for a seller is often more advantageous).
If a transaction is executed via a transfer of shares, Web Store Holding Ltd sells its shares in Web Store Ltd. In this case the seller is the Holding (mother company) and not the operating company that contains the (online) business.
The buyer acquires the complete company (legal entity) automatically including all its assets and liabilities, rights and obligations, agreements with suppliers and customers, licenses and obligations to the tax authorities. In fact, nothing changes except the identity of the shareholder.
For both buyer and seller, the stock transaction is the simplest procedure to execute a transfer: A joint visit to the Notary is all it takes. (but, always make sure you sign a good acquisition contract first!). The buyer should be very aware that he doesn't start an online business with a 'clean slate' but, in addition to all rights, he takes over all the obligations and risks from the company's history. Thorough research (due diligence) is of the essence!
In most cases a seller will prefer a transfer of shares, because it's the easiest way to transfer his online business and with the transfer he's getting rid of most associated risk and obligations. And in addition, the seller can make use of tax advantages in most countries, that excludes him from being taxed on the transaction price (!). Please note: To make use of this exemption, the seller can't be a private person, but should be a limited company (Holding).
And here's a disadvantage for the buyer: In case of a share transfer, he cannot amortize the acquired assets.
When acquiring an online business, the asset transfer will occur more often than in traditional SME acquisitions. This is partly due to the size of the acquisition, which is on average smaller then in traditional SME acquisitions. But whatever way of transfer you choose: always make sure that you capture everything accurately and punctually in an acquisition contract. And keep in mind that the seller will be charged by tax authorities bases on the profit he makes with the sale of his online business. And that the buyer is able to amortize the assets he acquires. As a result, the acquisition price of an online business that is transferred in this way, will usually be somewhat higher then when the business is transferred with a share transaction. When the latter seems more advantageous: always make sure a thorough due diligence is executed!