Asset Purchase Agreement vs. Share Purchase Agreement: Which One Are You Actually Signing

The 30-Second Definition

An Asset Purchase Agreement (APA) transfers specific assets and liabilities of a business — contracts, equipment, intellectual property, stock — rather than the company itself, leaving the legal entity, and anything not explicitly transferred, behind with the seller. It is the structural alternative to a Share Purchase Agreement (SPA), which transfers the whole company, including every liability, known and unknown.

Why Buyers Often Prefer an APA

An APA lets a buyer cherry-pick the assets they want and leave historic liabilities — litigation, pension deficits, undisclosed tax exposure — behind in the existing entity. It's the structure most commonly used when acquiring a distressed business, or a specific division or business unit rather than an entire company.

Why Sellers Often Resist

If the seller is the corporate entity itself, it's left holding whatever wasn't transferred, including liabilities the buyer specifically chose not to take on. If the seller is an individual selling through a company, an APA structure means the company sells its assets while the individual still owns the now largely empty shell — a materially different position to selling shares directly.

The Tax Difference That Changes Everything

SPAs are generally far more tax-efficient for individual sellers, since they're disposing of shares directly and the gain is assessed under Capital Gains Tax rules, with Business Asset Disposal Relief potentially available. 

APAs can trigger a double tax charge instead: corporation tax on the gain inside the company when the assets are sold, followed by a further tax charge when the proceeds are eventually extracted by the shareholder, whether as a dividend or on liquidation. This difference has to be modelled before the deal structure is agreed, not discovered afterwards.

The Practical Signal

When a buyer proposes an APA on what looks like a straightforward trading business, it's worth asking why. Sometimes the logic is purely commercial — a genuine carve-out of part of the business. 

Sometimes it's a way of avoiding unknown liabilities that should, in fairness, be priced into the negotiation rather than simply left with the seller.

GRAX Connection

Which structure is used directly shapes both Acquire-side risk allocation and Exit-side net proceeds. This decision is typically made at Heads of Terms stage and becomes far harder to unwind once due diligence is already underway.

This entry is for general information only and does not constitute legal, financial, or tax advice. Founders should take specific professional advice before acting on any of the points covered here.