The decision determines what risks and obligations the buyer will assume, how business continuity will be ensured, and how much effort the transaction itself will require, comments Roberta Iškauskaitė, associate lawyer at the law firm “Cobalt,” as stated in the “Cobalt” press release.
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“The choice between a share or asset deal is not just a technical issue. It determines what risk the buyer will take, how complex the deal will be, and what actions are needed to ensure business continuity. Therefore, it is important to evaluate not only the price but also what kind of business is intended to be acquired and what history the buyer is prepared to accept,” says R. Iškauskaitė.
The key difference – what is acquired in the transaction
In a share deal, the shares of the company being purchased are acquired, so the buyer becomes its shareholder. The company itself does not change – it continues to hold the same assets, contracts, employees, and obligations. In other words, the owner changes, but the company and its relationships with contract parties essentially remain unchanged. “Therefore, the buyer also takes over the entire history of the company, including risks that may still be unknown at the time of the transaction,” notes the associate lawyer at “Cobalt.”
In an asset deal, the buyer acquires a selected business or part of it, but not the legal entity itself. The parties can choose which assets, rights, contracts, and other business elements the buyer will take over and which will remain with the seller. This provides more flexibility but also requires evaluating each transferred element and the applicable transfer requirements.
Arguments for choosing a share deal
A share deal is most rational when the buyer aims to take over an operating business as a whole and maintain its continuity. The owner of the company changes, but its assets, contracts, employees, and other operational elements remain within the same structure.
This structure is especially suitable when the business value lies not in individual asset units but in their interconnections – relationships with clients and suppliers, employee expertise, brand, technology, or long-term contracts. For this reason, share deals are particularly common in the technology sector. They are also attractive when the company has many contracts or licenses necessary for operations, as these do not need to be transferred individually to the buyer. However, some contracts may include change-of-control provisions – these may require notifying the other party about the change of shareholder, obtaining their consent, or granting them the right to terminate the contract.
The main drawback is that the buyer inherits the company’s history along with the business. The buyer may inherit undisclosed debts, tax risks, disputes, or other historical obligations. Therefore, thorough legal and financial due diligence is especially important, and identified risks are usually managed through protective measures stipulated in the transaction documents, such as seller warranties or price adjustment mechanisms.
Arguments for choosing an asset deal
An asset deal is most rational when the buyer seeks to acquire a specific business or part of it but not necessarily the entire legal entity. Its main advantage is the ability to select the assets, rights, contracts, or other business elements to be acquired and essentially separate from the seller’s historical obligations.
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This structure is especially suitable when the seller operates several different activities, and the buyer is interested only in a specific part of the business, product line, or asset group. An asset deal is also appropriate when the company has significant historical risks, such as disputes or tax obligations, which the buyer does not want to assume. In the energy and infrastructure sectors, this structure is often chosen when acquiring specific projects or asset objects.
The main drawback is a more complex transfer process. Contracts may need to be transferred separately, assets re-registered, intellectual property transferred, or third-party consents obtained. In certain regulated sectors, the transfer of licenses or permits may be limited, making a share deal sometimes more practical.
“A share deal is usually simpler because the legal entity and its relationships with clients, employees, and partners remain unchanged. However, the buyer also assumes all the historical risks accumulated by the company. An asset deal offers more choice about what to acquire, but individual business elements need to be evaluated and transferred into the buyer’s structure. Therefore, such a deal often requires more work, time, and coordination,” says R. Iškauskaitė.
What else is important to know from a legal perspective
An asset deal in Lithuania does not automatically mean complete separation from the seller’s obligations. When not individual asset units but the entire company or a significant part of it is transferred, additional creditor protection rules may apply, and the buyer may incur certain duties. Therefore, it is important to assess in advance the actual scope of the business being transferred.
In a share deal, the position of employees and contractual relationships usually do not change because the employer remains the same legal entity. In an asset deal, additional coordination with contractors, employees, or financiers may be required, which can increase both the duration and costs of the transaction.
Lithuanian court practice consistently emphasizes that when evaluating a transaction, the decisive factor is not its formal name but the actual content, the parties’ intent, and the economic result sought. This means that several separate asset sale transactions may, in some cases, be considered as the transfer of the entire company or a significant part of it. Therefore, it is important that the chosen transaction form corresponds to its actual content.
“There is no universal answer as to which transaction model is better. A share deal provides simplicity and maintains business continuity but also transfers historical risk. An asset deal allows the buyer to select what to acquire but requires more time, costs, and coordination. First, it is necessary to clearly answer what is actually intended to be acquired, and then assess the risks and practical obstacles to implementing the transaction,” emphasizes R. Iškauskaitė, associate lawyer at “Cobalt.”
