There are two broad ways for an owner to realise value or bring in a partner: sell shares in the company, or sell the business and assets. Each has different legal, tax and practical consequences. Preparation, meaning clean records, clear ownership and reliable numbers, usually has more effect on the outcome than negotiation tactics.
Buyers and partners will carry out due diligence; gaps in records reduce price or delay completion. Take professional advice on structure, tax and documentation before heads of terms are signed.
At a glance
- Share sale
- The company transfers with all its history
- Asset sale
- Selected assets and contracts transfer to the buyer
- Typical timing
- Often several months from preparation to completion
- What buyers pay for
- Confidence: clean records and dependable numbers
Share sale or asset sale?
| Point | Share sale | Asset sale |
|---|---|---|
| What transfers | The shares; the company keeps its assets, contracts and liabilities | Selected assets, contracts and employees |
| Liabilities | Stay with the company (buyer protected by warranties and indemnities) | Generally stay with the seller |
| Contracts and licences | Usually continue, subject to change-of-control clauses | Must be assigned or novated; some licences cannot be transferred |
| Employees | Employment continues with the company | Transfer requires agreement; service may be treated as continuous in some cases |
| Stamp duty | On the share transfer | May apply to transfers of certain assets, such as property |
Bringing in a partner or investor
- Issue new shares to the partner, or sell existing shares to them.
- Agree a shareholders' agreement covering management, decisions, funding, transfers and exit.
- Update the articles, registers and Significant Controllers Register, and file the required forms.
- Consider tax for the founders and the company before the transaction.
Preparing for a sale
- Bring statutory records, filings and accounts fully up to date.
- Resolve any outstanding tax matters.
- Make sure the company owns its IP and key assets.
- Organise contracts, leases and licences, and check change-of-control terms.
- Prepare reliable management accounts and a forecast.
- Reduce dependence on the owner: document processes and key relationships.
Questions we are often asked
How long does a sale take?
From preparation to completion, often several months. Preparation before going to market shortens the process.
Is a gain on selling shares taxable in Hong Kong?
Hong Kong does not tax capital gains, but gains that are trading in nature are taxable as profits. Whether a gain is capital or revenue depends on the facts; take tax advice.
Should I tell my staff and customers before a sale?
Usually not until terms are agreed, and often only shortly before completion. Confidentiality agreements with potential buyers protect your information during discussions.
What is a data room?
A secure, organised set of documents (corporate, financial, tax, contracts, people and IP) that buyers review during due diligence. Preparing it in advance speeds up the process.
Self-check: where do you stand?
| Question | If the answer is no |
|---|---|
| Are your statutory records and filings up to date? | Rectify before approaching buyers |
| Does the company own its IP and key assets? | Obtain assignments |
| Have you reviewed key contracts for change-of-control clauses? | Review them early |
| Could the business run without you for a month? | Document processes and delegate |
| Are your management accounts reliable? | Move to monthly reporting |
- Company health checks and rectification before a sale.
- Share transfers, allotments, resolutions and filings at completion.
- The corporate section of the data room.
- MAP Asia Pacific advises on M&A, valuation, partner selection and deal structuring; RENT-CFO prepares the financial information buyers rely on.
In summary
- Choose between a share sale and an asset sale.
- Prepare records and numbers before going to market.
- Take legal and tax advice early.
Official references
- Companies Ordinance (Cap. 622)
- Stamp Duty Ordinance (Cap. 117)
- Inland Revenue Department, www.ird.gov.hk