Share sale or asset sale: how the data room changes

Most UK owner-managed businesses are sold by share sale, because sellers generally prefer to walk away from the company and its history in one go, and the tax outcome often suits them better. Buyers lean the other way, since buying assets lets them leave old liabilities behind. Where the negotiation lands decides what goes into the data room, and the two rooms look surprisingly different once you open them.

What is the legal difference, in plain terms?

A share sale transfers ownership of the company itself. The company keeps its name, its registered number, its bank accounts, its employees and its contracts. Nothing inside it moves. What changes is who owns the shares, which is why the buyer inherits the company’s whole past, good and bad.

An asset sale transfers chosen things out of the company: equipment, stock, goodwill, intellectual property, property interests, customer contracts, sometimes a trading name. The selling company stays with its current owner, along with anything the buyer has not agreed to take.

That difference drives the diligence. In a share sale, the buyer’s lawyers are trying to find every liability hiding in the company, because they cannot leave any of it behind. In an asset sale they are trying to confirm that the assets on the list really exist, really belong to the seller and can actually be transferred.

Why does a share sale data room need so much history?

Because the buyer cannot ring-fence anything. A tax enquiry from five years ago, an old employment claim, a lease guarantee given by a former director: all of it stays with the company and becomes the buyer’s problem after completion, subject only to what the warranties and indemnities say.

So the share sale room is wide. Expect the buyer’s solicitors to ask for:

• Corporate records. Articles of association, the statutory registers, board and shareholder minutes, and filings that match the public record at Companies House. Gaps here are among the first things a buyer finds.
• Every material contract, with a particular eye on change of control clauses that let a counterparty terminate or renegotiate when the company changes hands.
• Tax history covering corporation tax returns and computations, VAT returns, PAYE records and any HMRC correspondence or enquiries for the period the buyer’s advisers specify.
• Litigation and disputes, including threatened claims and settled matters with continuing obligations.
• Financing documents: loan agreements, security, guarantees, and anything that would be triggered by a sale.

The tax covenant, or tax deed, deserves a mention because it shapes the tax folder. It is the seller’s promise to pay for pre-completion tax liabilities that surface later. Buyers use the tax folder to judge how much protection they need, and sellers use it to support the limits they want on that promise. A thin tax folder in a share sale invites a heavier covenant.

What does an asset sale room have to prove instead?

Title, transferability and the information duties that come with transferring a business.

Title means showing the seller owns what it is selling. For equipment, that is a fixed asset register reconciled to invoices and to any finance agreements (assets on hire purchase or lease are not the seller’s to sell). For intellectual property, it is registrations, assignments from founders and contractors, and licences in and out. For property, it is title documents, leases and any landlord consent needed for an assignment.

Transferability is about contracts. A company cannot simply hand its customer and supplier agreements to someone else. Benefits can often be assigned unless the contract says otherwise, but obligations generally only move by novation, which needs the counterparty to agree. The asset sale room therefore needs every contract the buyer wants, with its assignment clause highlighted, and a tracker showing which counterparties must consent.

A share sale room asks “what is in this company?” An asset sale room asks “can this particular thing leave the company cleanly?”

How do contracts move in each structure?

This is the clearest practical split between the two rooms, so it is worth laying out the paperwork each one needs.

In practice, the asset sale room grows a “Consents” folder that does not exist in a share sale. It holds the consent tracker, approach letters, signed consents as they come back, and novation agreements in agreed form. Keep it restricted until the seller is ready to approach counterparties, because the act of asking for consent tells customers a sale is under way.

What happens to employees, and how does TUPE change the room?

In a share sale the employer does not change. Staff stay employed by the same company on the same terms, so the buyer reviews employment contracts, policies and disputes, but there is no transfer process.

In an asset sale of a business, the Transfer of Undertakings (Protection of Employment) Regulations 2006 usually apply. Employees assigned to the transferring business move to the buyer automatically on their existing terms, and the regulations bring two duties that affect the room:

1. Employee liability information. The seller must give the buyer specified information about transferring staff, in writing, at least 28 days before the transfer. This includes identity, age, particulars of employment, disciplinary and grievance history, and claims. The data room is a sensible place to deliver it, with the date recorded in the audit log.
2. Information and consultation. Both employers must inform, and where measures are envisaged consult, representatives of affected employees. The room can hold the drafts and the record of what was said and when, but the consultation itself happens outside it.

Employee data is personal data, and some of it is special category data. Early in an asset sale, bidders should see anonymised headcount, roles and pay bands rather than named files; names belong late and to a restricted group. Our guide to TUPE and employee data in a data room works through the timing in more detail, and the UK GDPR guide covers lawful basis and minimisation.

How does tax diligence differ between the two?

In a share sale, tax diligence is historical and broad. The buyer is inheriting the company’s tax position, so its advisers look back over several years for underpaid tax, aggressive planning, PAYE and IR35 exposures, VAT errors and open HMRC enquiries.

In an asset sale, the focus moves to the transaction itself:

• VAT on the transfer. A sale of a business as a going concern can be outside the scope of VAT if the conditions in HMRC’s VAT Notice 700/9 are met. The room should hold the seller’s VAT registration details and the evidence the buyer’s advisers need to agree the treatment.
• Capital allowances on plant and machinery, where the parties may need to agree values for the transferring assets.
• Stamp duty land tax on any property element, which falls on the buyer.

The seller’s historic tax returns matter less to an asset buyer, though a careful buyer will still want comfort that no tax charge can attach to the assets it takes.

How should the folder index change?

Start from the same top-level skeleton and change the weight of each folder. The list below is a reasonable default for a UK private company sale; the notes in the third column show where the asset version departs from the share version.

Numbering matters more than it seems. Disclosure letters and replies to enquiries often refer to documents by index number, so freeze the top-level numbers early and add sub-folders beneath them rather than renumbering. The disclosure letter guide explains why a stable index pays off at signing.

What if the structure changes halfway through?

It happens. A buyer finds a historic problem and refuses to buy shares, or a seller’s tax advice changes. Converting a live room is manageable if you do it in order.

1. Freeze uploads and record the switch date

   Pause new uploads for a day and note the date in the room's own records, so the audit trail shows what was available under each structure.

2. Agree the asset and contract lists

   Get the transferring assets, contracts and staff agreed in principle with the buyer before touching folders. The lists drive everything that follows.

3. Add the consents and title folders

   Create the new folders under fresh index numbers instead of renumbering existing ones, and restrict the consents folder to the core team.

4. Narrow permissions on corporate and tax history

   The asset buyer no longer needs the full corporate and tax archive. Restrict it rather than deleting it, because it may be needed if the structure changes back.

5. Start the TUPE timetable

   Work back from the target transfer date to set the latest day for delivering employee liability information, and prepare anonymised staff data first.

6. Tell every bidder in writing

   Post a short note in the room explaining the new folders and what has been restricted, so no one relies on material that is no longer in scope.

The audit trail does real work here. If a dispute later turns on what the buyer knew, the record of which documents were visible, to whom and on which dates is far more persuasive than anyone’s recollection. Most specialist rooms log views and downloads per user; check that yours lets you export that log at the end.

Does the choice of data room provider matter more for one structure?

Not in any decisive way. Both structures need the same core controls: granular permissions by folder and by group, a structured Q&A so enquiries and replies stay attached to documents, watermarking on downloads, and a complete audit trail.

Asset sales put a little more weight on permissions, because the consents folder and the named employee data both need tight, changeable access. Share sales put more weight on volume and search, because the corporate and tax archive can run to thousands of pages. Either way, the room should let you add groups and change folder access in minutes, not by raising a ticket.