Since the approach you choose will dictate the rest of the process, Solicitor Pei-Li Kew explains the difference between share and asset transactions when buying a pharmacy.

There’s a pharmacy down the road that’s caught your eye. You can’t stop thinking about how profitable it could become, if only it was run properly. By you. You ring a friend who knows an agent and, before you know it, you find the pharmacy you’ve been dreaming of is available. You can’t quite believe your luck. It’s destiny. That friend you rang is a retired solicitor. When you share your delight, she asks: “Will this be a share acquisition or an asset acquisition?” Um…A what?

When you have your eyes set on a pharmacy, one of the many decisions you have to make is whether you will be buying the shares in the company that owns the business (a share purchase), or whether you will be buying the business itself (its stock, goodwill, contracts, etc – an asset purchase).

At first glance, there might not look like much difference between the two, but your choice will determine the rest of the purchase process, so it’s important to choose wisely.

There are three things to consider when deciding which is the best way to go.

The existing pharmacy business structure This should always be your first consideration. If the existing pharmacy is not owned by a company (for example, it is owned outright by a sole trader or by a partnership), the only option you have is to purchase the business through an asset purchase. Only when the pharmacy is owned by a company, will you have a choice of whether to proceed via a share or an asset purchase.

Time and costs If the pharmacy is owned by a company, it often makes overwhelming sense to proceed with a share purchase rather than an asset purchase, due to its simplicity. With a share purchase, there is no change in the underlying ownership of the pharmacy’s assets. The company remains the named owner of the key assets, including the NHS contract and the main supplier contracts.

This means that, in many aspects, it remains ‘business as usual’ after the company has changed hands. There is no need to identify the exact assets to be transferred, nor to apply to change the named parties in the contracts, licences and property deeds, all of which must be done on an asset purchase. Altogether, a share purchase often has the effect of speeding up transactions as there is less scope for third-party delays. With its simplicity, a share purchase will help to reduce the expenses of a purchase.

The liabilities of a pharmacy Of course, it can’t be that easy, can it? There is a dark side to a share purchase. While you inherit all of the target’s contracts and goodwill automatically, you also inherit all of its liabilities. For this reason, some buyers opt for the asset purchase route, even when it involves a company-owned pharmacy. They may decide that the liabilities are just too big to accept (such as an ongoing dispute with a supplier). Or it might be that the target company’s business comprises more than the pharmacy you are interested in, in which case you would certainly favour an asset purchase.

Other considerations

Bear in mind that the seller will also have a view on how the transaction should be structured. Often, for the same reasons as you (simplicity and speed), as well as tax considerations, the seller will want to sell via shares if this route is available.

While you can change your mind about the structure of the transaction midway through the process, it is best to have a clear idea from the beginning to ensure the process is as streamlined and cost-efficient as possible.

The above is a general overview and we recommend that independent legal advice is sought for your specific concerns.

Pei-Li Kew is a solicitor in the pharmacy transactions team, Charles Russell Speechlys LLP

PeiLi.Kew@crsblaw.com