Sale and purchase of assets versus shares

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The following are some points to consider when deciding whether to structure a deal as a sale and purchase of assets or shares.

1. Stamp duty

Sale of assets in Malaysia attracts stamp duty at 1% to 4% of the sale consideration or market value of the assets, whichever is higher.

Sale of non-listed shares of a Malaysian incorporated company is subject to stamp duty at 0.3% of the sale consideration or value of the shares on the date of transfer, whichever is higher.

2. Liabilities

For a sale and purchase of assets, the buyer may choose which assets to acquire from the company that owns those assets. The buyer may avoid assuming potential liabilities such as product warranty and employees’ claims. An asset sale and purchase agreement typically provides for a cut-off date from which the buyer assumes liabilities in respect of those assets. The seller will remain liable for all liabilities incurred in respect of those assets before the agreed cut-off date.

For a sale and purchase of shares, the buyer acquires the shares in the target company, with all the assets and liabilities of the target company. Save for any indemnities and warranties given by the seller for the buyer’s benefit, the seller may be able to make a clean break with the target company upon completion of the sale and purchase of shares..

3. Identification of assets and liabilities

On a sale of assets, the seller and buyer need to identify each asset and liability of business and determine whether that asset or liability is to remain with the seller or be transferred to the buyer. Therefore it is important that the asset sale and purchase agreement lists out or clearly describes the exact assets and liabilities which are to remain with the seller and which are to be transferred to the buyer.

This will not be an issue for sale and purchase of shares.

4. Less extensive due diligence

Buyer of assets may exclude unwanted or unknown liabilities. The due diligence for sale and purchase of business may be less extensive than the sale and purchase of shares as the former does not need to cover matters which are excluded.

5. Formality for the transfer of title

It is necessary to comply with all necessary formalities for the transfer of each asset included in an asset sale and purchase agreement e.g. novation of contracts and physical delivery of moveable plants and machinery.

By contrast, all that is needed is a formal transfer of shares on a sale and purchase of shares

#malaysiancorporatelawyer
#mergersandacquisitions

This post was first posted on Linkedin on 12 July 2022.

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