Anatomy of an M&A Transaction: Share Purchase vs. Asset Purchase, Explained
"Tell me about a recent deal" is one of the most common commercial awareness questions in training contract and vacation scheme interviews, and one of the most common ways candidates lose marks is by describing what a company does without saying anything about how the deal was actually put together. Every UK company acquisition starts with one structural choice, buy the shares, or buy the assets, and that single decision determines who inherits the staff, what tax is due, and how much risk each side is carrying at completion. Understanding that choice, and being able to talk through it fluently, is what separates a candidate who's read a press release from one who understands the transaction underneath it.
The First Fork in the Road: Share Purchase or Asset Purchase
In a share purchase, the buyer acquires the target company itself by buying its shares from the existing shareholders. Because the company remains the same legal entity throughout, every asset, contract, and liability it holds, known or unknown, transfers with it automatically. The buyer effectively steps into the shareholders' shoes; nothing about the company's day-to-day contracts or obligations needs to be individually reassigned.
In an asset purchase, the buyer instead acquires specific assets (property, equipment, IP, customer contracts, goodwill) and chooses which liabilities to assume. The target company itself, and anything left out of the deal, stays with the seller. This gives the buyer more control over exactly what they're taking on, but it also means each asset and contract may need to be individually transferred or novated.
Said structural choice has two immediate, testable consequences:
Employees and TUPE. The Transfer of Undertakings (Protection of Employment) Regulations 2006 apply to asset purchases: employees assigned to the transferred business move across to the buyer automatically, and a dismissal connected to the transfer is presumptively unfair unless the employer can show a genuine economic, technical, or organisational (ETO) reason. In a share purchase, by contrast, the employees' employer never changes, they remain employed by the target company throughout, so TUPE simply doesn't engage.
Tax. Share purchases attract UK stamp duty at 0.5% of the purchase price, paid on the share transfer itself. Asset purchases don't attract stamp duty (there are no shares changing hands), but Stamp Duty Land Tax (SDLT) can apply if property is among the assets transferred, and VAT treatment has to be worked through asset by asset. This is one of the reasons sellers often prefer a clean share sale, while buyers, wary of inheriting unknown liabilities, sometimes push for an asset deal instead.
Pricing the Deal: Locked Box vs. Completion Accounts
Once the structure is settled, the parties still need to agree how the price is fixed, because a business's value can move between signing and completion. UK private M&A typically uses one of two pricing mechanisms.
Under a locked box mechanism, the price is fixed by reference to a set of historic accounts, the "locked box accounts", agreed at signing. The buyer is protected against value being stripped out of the business between the locked box date and completion by a "no leakage" covenant, under which the seller indemnifies the buyer for any unauthorised extraction of value (an early dividend, an inflated management fee, and so on) during that period. This gives both sides price certainty up front.
Under completion accounts, the price isn't finally fixed until after completion, once a set of closing accounts has been prepared and agreed under detailed mechanics set out in the sale agreement, often taking several months. This shifts economic risk in the interim period to the buyer (who now owns the business while its value is still being measured) but avoids arguments about historic "leakage."
Which mechanism gets used is itself a negotiating point, and interviewers who ask "what would you consider when advising a client on pricing?" are often listening for exactly this distinction.
Warranties, Disclosure Letters, and Where the Risk Actually Sits
Because a share purchase buyer inherits every liability of the target, including ones due diligence might not catch, sellers are typically asked to give a broad set of warranties: statements of fact about the company's accounts, material contracts, litigation history, tax position, employment matters, and compliance. If a warranty turns out to be untrue, the buyer can bring a claim for the resulting loss, usually within a defined post-completion window.
Sellers manage that exposure through a disclosure letter, which sits alongside the sale agreement and qualifies the warranties with specific facts the seller has told the buyer about (for example, "warranty 4.2 as to ongoing litigation is qualified by the pending claim disclosed in Schedule 3"). Anything fairly disclosed generally can't later form the basis of a warranty claim, it puts the risk back with the buyer, who was told and had the chance to price it in or walk away. Asset purchases still involve warranties, but they're narrower and tied specifically to the assets being acquired rather than the whole company's history.
How to Actually Use This in Practice
For a training contract interview, vacation scheme assessment, or SQE2 client-interview task, this doctrine is far more useful as a framework for a live answer than as a memorised fact list. A practical way to build it into your prep:
1. Pick one live or recent deal (a firm's website, Law360, or the Lawyer will have deal announcements) and identify, or reasonably infer, whether it was structured as a share or asset purchase.
2. Name the pricing mechanism if it's disclosed, or explain what you'd want to know to advise on one.
3. Practise a 60–90 second answer that moves through structure → TUPE/tax consequence → pricing mechanism → warranty protection, in that order, so you sound like you understand the deal's architecture rather than reciting definitions.
4. Anticipate the follow-up, "why might a buyer prefer an asset deal here?" or "what would you put in the disclosure letter?", since interviewers often use this topic specifically to test whether you can reason from the facts rather than just recall them.
Turning This Into Interview-Ready Answers
Knowing the doctrine is the first step; being able to structure a fluent, confident answer under interview pressure is a separate skill, and it's the one that actually gets tested. LexWriters' tutoring and model-answer sessions work with students to build and rehearse exactly this kind of commercial awareness answer, using real recent deals as source material, so you walk into the interview with a framework you can adapt to whatever deal comes up rather than a script you've memorised. If you want structured feedback on how you're framing an answer like this, get in touch via WhatsApp or lexwriters.co.uk.
Sources
- Clarkson Wright & Jakes Solicitors, "Share Purchase vs Asset purchase – what is the difference?" — https://www.cwj.co.uk/site/newsandevents/legalnews/share-purchase-asset-purchase-what-is-the-difference
- SO Legal, "Share purchase or asset purchase: what's the difference?" — https://www.solegal.co.uk/insights/share-purchase-or-asset-purchase-whats-difference
- Howells Solicitors, "Buying a Business: Asset Purchase vs Share Purchase" — https://www.howellslegal.co.uk/news/buying-a-business-asset-purchase-vs-share-purchase/
- Mackrell LLP, "Asset versus Share purchases – Which is right for you?" — https://www.mackrell.com/blog/asset-versus-share-purchases-which-is-right-for-you/
- Lewis Silkin, "US/UK M&A: Price adjustment mechanisms: the locked box" — https://www.lewissilkin.com/insights/2024/04/04/us-uk-ma-price-adjustment-mechanisms-the-locked-box
- Greenwoods Legal Services, "Locked Box v Completion Accounts in UK acquisitions" — https://www.greenwoods.co.uk/article/locked-box-v-completion-accounts-in-uk-acquisitions/
- LexisNexis UK, "Share purchase agreement (SPA) meaning in UK Law" — https://www.lexisnexis.com/en-gb/legal/glossary/share-purchase-agreement-spa
- TUPE (Transfer of Undertakings (Protection of Employment) Regulations 2006) — general application to business/asset transfers, as summarised consistently across the above practitioner sources.