subject: Company Acquisitions Continued [print this page] This is the second article surrounding company acquisitions and the advantages and disadvantages associated with acquiring a business through an acquisition of shares. In this article we mention some of the many disadvantages associated with this type of company acquisition, which continue on from our previous instalment 'A Guide to Company Acquisitions'.
Liabilities
There are some liabilities involved with an acquisition of shares. When attempting to purchase a target company you may encounter some existing liabilities, these can include but are not limited to inheriting existing contractual agreements and the possibility of inheriting all of the existing debts and other liabilities.
Pre-sale re-organisations
A pre sale reorganisation is when a business is purchased through an acquisition of shares and some of the assets of the purchased business are not included in the sale. When this occurs, the purchaser is required to then strip out these assets before the acquisition is completed. This is generally regarded as complicated process.
Tax disadvantage
Capital allowances are not available on shares during a share acquisition. The share purchaser usually acquires the assets of the selling company with a 'base cost' for capital gains tax purposes, this is equal to the price paid and capital allowances can be obtained for qualifying assets. Furthermore the companies taxable assets are based on historic data, any differences are seen in the deferred tax liability provision.
Financial Assistance
In 1985 an act was passed that prohibits a company purchasing a target company through a share acquisition from receiving any financing help from the company they are purchasing in the form of a loan. This included granting security over the assets.
Transfer restrictions
Some difficulties could be encountered during the acquisition with regards to a restriction in place for transfer of the target company's articles of association.
