Share Sale vs Asset Sale vs Slump Sale: Which Is Right for Your Deal?
By the Connectyfy Deals Team · Updated · 5 min read
Key takeaways
- In a share sale, the buyer buys the company itself — with all its history, contracts, licences and liabilities.
- In an asset sale, the buyer picks specific assets; liabilities generally stay with the seller.
- A slump sale transfers a whole business undertaking for a lump-sum price, without valuing each asset separately.
- Sellers often prefer share sales; buyers often prefer asset deals. Tax and stamp duty differ significantly — take advice from a CA before agreeing the structure.
Why the structure matters
Two deals with the same headline price can leave buyer and seller with very different outcomes depending on how they are structured. The structure decides what the buyer actually owns, which liabilities come with it, which licences and contracts survive, how much tax each side pays, and how long it takes to complete.
The structure should be agreed in the letter of intent, before detailed due diligence — although diligence findings sometimes change it.
Share sale: buying the company
The buyer purchases the shares of a private limited company (or the partners’ interest in an LLP). The company itself doesn’t change: it keeps its bank accounts, GST registration, licences, contracts, employees, assets — and its liabilities, including past tax exposures.
- Simpler continuity: most contracts and licences stay in place, though change-of-control clauses and some regulators require consent or notice.
- Liabilities transfer: the buyer inherits everything, known and unknown, so warranties and indemnities from the seller are essential.
- Documentation: share purchase agreement, share transfer deed (Form SH-4), board approvals, and updates to statutory registers and ROC filings.
- Only available to companies and LLPs — a proprietorship or partnership firm has no shares to sell.
Asset sale: buying selected assets
The buyer purchases specific assets — equipment, stock, brand, customer contracts, the lease — from the business, and each asset is separately identified and priced. The selling entity remains with its owner, along with any liabilities the buyer doesn’t expressly take on.
- Cherry-picking: the buyer chooses what to take and leaves out problem assets and liabilities.
- More paperwork: each asset must be transferred, contracts assigned (often needing third-party consent), and licences re-applied for.
- Employees must be offered new employment by the buyer.
- Taxes on individual assets: transfers of individual goods may attract GST, and immovable property attracts stamp duty and registration.
Slump sale: transferring the whole business
A slump sale (a business transfer agreement, or BTA) sits between the two. The seller transfers an entire business undertaking — assets, liabilities, employees and contracts of that business — as a going concern, for a single lump-sum price, without assigning values to individual assets.
- Useful for carving out one division of a company, or for selling a proprietorship’s business as a whole.
- Income tax law treats a slump sale as a distinct type of capital gains transaction, with its own computation rules.
- A transfer of a business as a going concern is generally exempt from GST — the conditions should be checked carefully with your CA.
- Licences and many registrations still need to be obtained or modified in the buyer’s name, as with an asset sale.
Side-by-side comparison
| Share sale | Asset sale | Slump sale (BTA) | |
|---|---|---|---|
| What is sold | Shares of the company | Selected assets | The whole business undertaking |
| Liabilities | Stay with the company (buyer inherits them) | Stay with the seller unless taken over | Liabilities of the undertaking transfer |
| Contracts and licences | Generally continue | Re-assigned or re-applied for | Re-assigned or re-applied for |
| Employees | Continue with the company | Re-hired by the buyer | Transfer with the undertaking |
| GST | Not applicable to share transfers | Usually applies to transfer of goods | Generally exempt as a going concern |
| Paperwork | Lighter | Heaviest | Moderate |
| Usually preferred by | Sellers | Buyers | Both, for carve-outs and proprietorships |
Tax: what to ask your CA
Tax often decides the structure, and India’s income tax law was overhauled recently, so rely on current professional advice rather than older articles. The questions to bring to your chartered accountant:
- How will my gain be taxed under each structure, and does the holding period make it short-term or long-term?
- In an asset sale, how are depreciation and the tax written-down value of assets treated?
- Does the slump sale computation suit my situation better than selling shares?
- Is the transfer exempt from GST as a going concern, and what conditions must we meet?
- What stamp duty applies — on share transfers, on the business transfer agreement, and on any property — in our state?
- Will the price need to meet any fair-value or valuation rules?
Tip: Agree in the term sheet whether the headline price is for the shares or the business, whether it is ‘cash-free, debt-free’, and how working capital is adjusted at completion. Many disputes start here.
Which structure should you choose?
As a rule of thumb: sellers prefer a share sale because it is a clean exit — the liabilities go with the company. Buyers prefer an asset deal because they leave unknown liabilities behind. A slump sale is often the practical answer for a proprietorship, or for a company selling one line of business.
Where the parties disagree, the gap is usually bridged with price: a share sale with strong warranties and an escrow, or an asset deal at a slightly higher price. An M&A advisor or chartered accountant can help model the options. See how to value your business and the documents you will need.
Frequently asked questions
What is a slump sale?
A slump sale is the transfer of a whole business undertaking as a going concern for a single lump-sum price, without separately valuing each asset. It is commonly used to sell one division of a company or the business of a proprietorship.
Is GST payable when selling a business in India?
A transfer of a business as a going concern is generally exempt from GST, while selling individual goods and assets usually attracts GST. A transfer of shares is not a supply of goods or services for GST. Confirm the conditions with your CA.
Can a proprietorship do a share sale?
No. A sole proprietorship has no shares. It is sold as a business transfer (slump sale) or as a sale of specific assets.
Which is better for the buyer: share purchase or asset purchase?
An asset purchase usually protects the buyer better because historical liabilities stay with the seller. A share purchase is simpler for continuity of contracts and licences but needs strong warranties and indemnities.