Asset Purchase vs. Share Purchase: How to Structure Your Cafe Sale

1. Introduction: The Two Legal Frameworks for Transferring Corporate Ownership

Every UK café sale ultimately resolves into one of two transaction structures: the buyer either acquires the underlying trading assets of the business (an Asset Purchase Agreement, or APA), or — if you trade through a limited company — the buyer acquires your shares in that company (a Share Purchase Agreement, or SPA). The choice is not aesthetic. It changes the tax bill on both sides by tens of thousands of pounds, allocates legal liabilities very differently, affects what TUPE applies to, and dictates whether supplier contracts and the lease need to be formally novated or simply roll on.

The first time owner-operators consider this question is usually after the first offer letter arrives, at which point it is already partially too late — the buyer has anchored on a structure, often on advice from their accountant or broker, and the seller is on the back foot. The right time to think about structure is before marketing, when you can position the business deliberately, draft a heads of terms template, and educate prospective buyers on why your preferred structure makes commercial sense.

This guide explains each structure in plain English, walks through the practical differences in liability, tax and process, and provides a decision framework for choosing between them. We assume a UK independent café trading through either a sole trader / partnership (APA only — there are no shares to sell) or a limited company (where the choice is live).

2. The Asset Purchase Agreement (APA): Selling Equipment, Goodwill and Stock

In an APA, the buyer cherry-picks specific assets from the seller's balance sheet: the lease (by assignment), the espresso machine and other plant, fixtures and fittings, stock, goodwill, brand assets (trade marks, social media handles), customer data and certain contracts. The seller's corporate entity — if any — remains in the seller's ownership, holding everything not transferred: the cash, any retained property, residual creditors and the entire trading history.

What transfers automatically vs by assignment

Almost nothing transfers automatically in an APA. Each contract — coffee supplier, milk supplier, waste disposal, EPOS subscription, accountancy retainer, energy contract — must be either novated (with the counterparty's written consent) or terminated and re-procured by the buyer in its own name. The lease must be formally assigned (Article 3 in this series covers the mechanics). The premises licence must be transferred. The Food Standards Agency rating is tied to the premises and continues. PAYE registration, VAT registration and Corporation Tax all stay with the seller's company.

TUPE

An APA structured as a sale of a going concern is a classic TUPE business transfer (see Article 2). All employees assigned to the business transfer to the buyer automatically on existing terms.

When an APA is preferred

APAs dominate UK café sales in the independent sub-£500,000 segment because: (a) most café trading entities are micro-companies with limited corporate history but high contingent risk (informal payroll, unrecorded cash takings, opaque tax positions); (b) the buyer pool — often first-time operators or private individuals — is more familiar with asset purchases; and (c) high-street acquisition lenders prefer to lend against a clean asset bundle rather than an inherited company.

3. The Share Purchase Agreement (SPA): Selling the Entire Limited Company

In an SPA, you sell your shares in the trading company to the buyer. The company itself continues unchanged — same Companies House number, same VAT registration, same lease, same employment contracts, same supplier relationships. The buyer becomes the new shareholder (and typically replaces the directors at completion).

What transfers automatically

Everything, because the corporate entity does not change. The lease continues (no formal assignment required, though many leases have "change of control" clauses requiring landlord consent — see below). All supplier and customer contracts continue. Employees continue with no TUPE transfer (TUPE does not apply to share sales — the employer entity has not changed). VAT and PAYE registrations roll on. The trade marks, domain names, EPOS data and social media accounts all remain owned by the company and are simply now owned by a company with new shareholders.

Change of control clauses

Many modern commercial leases and key supplier contracts contain "change of control" provisions that treat a sale of a majority shareholding as if it were an assignment, requiring landlord or counterparty consent. If your lease has such a clause (read clause 3.18-3.25 carefully), an SPA does not avoid the landlord consent process — it triggers it. The same applies to franchise agreements, key licensing arrangements and some banking facilities.

When an SPA is preferred

SPAs dominate the upper end of the market (typically £750,000+) because: (a) the tax position is usually better for the seller (BADR-protected share gain at 18% vs. mixed asset-gain treatment); (b) contracts and the lease continue without consent friction (subject to change-of-control clauses); (c) the buyer inherits a working operating entity, which matters more for multi-site businesses with employee teams; and (d) institutional and private equity buyers prefer the predictability of a share acquisition.

4. Risk and Liability Allocation: Why Buyers Prefer APAs and Sellers Prefer SPAs

The fundamental asymmetry of the two structures is this: in an APA, the buyer leaves all unknown historical liability behind in the seller's shell, while in an SPA the buyer inherits everything — known and unknown — that the company has ever done.

Examples of inherited liability in an SPA

• An undisclosed HMRC enquiry into 2023 cash takings.
• A 2022 customer slip-and-fall claim that has not yet been issued at court.
• An employee grievance about unpaid overtime, accrued over four years, not yet formalised.
• A landlord dilapidations claim contingent on the eventual end of the lease.
• Penalty interest on late-filed VAT returns.
• An expired food hygiene rating that has not yet been re-inspected.

None of these surface naturally in due diligence unless they are already documented. They emerge later — sometimes years later — and in an SPA they sit in the company the buyer now owns. The buyer's protection is the warranty and indemnity package in the SPA (Section 5 below). In an APA, by contrast, the corporate shell retains the historical liability and the seller deals with it personally; the buyer's clean trading entity is untouched.

Seller perspective

For sellers, the inverse is true. An APA leaves a corporate shell with cash, contingent liabilities, residual creditors and the obligation to file final accounts, deregister for VAT and PAYE, and ultimately wind up the company (with associated professional fees and time delays). An SPA hands all of that to the buyer at completion — the seller walks away with cash and a clean break. Tax-efficient too: a share sale gain qualifies for BADR (Article 4), whereas a company asset sale produces two layers of tax (Corporation Tax inside the company, then extraction tax to the shareholders).

5. Indemnities and Warranties: The Legal Promises You Must Make

Warranties are contractual statements of fact made by the seller about the business — for example, "the company is not subject to any tribunal claim", "all VAT returns have been filed on time", "the food hygiene rating is currently 5". Each warranty is qualified by the disclosure letter, which is a separately negotiated document setting out everything that would otherwise breach the warranty (the disclosed grievance, the late VAT return, the lapsed insurance policy). A buyer cannot bring a warranty claim for anything disclosed.

Typical warranty headings in a café SPA

• Title and capacity (the seller owns the shares and has authority to sell).
• Accounts (the last filed accounts give a true and fair view).
• Tax (all returns filed, all tax paid, no enquiries pending).
• Employment (no claims, ACAS-compliant policies, accurate payroll).
• Property (compliance with lease, no breaches, no disputes).
• Licences (premises licence valid, food hygiene 5 rating, alcohol DPS in place).
• Contracts (no material contracts terminable on change of control, no default).
• Litigation (no current, pending or threatened claims).
• Insurance (current cover in place, no outstanding claims).

Indemnities

Indemnities are a more powerful form of protection: a £-for-£ promise that if a specific risk crystallises, the seller will pay the buyer's loss without the buyer needing to prove the warranty was breached. Indemnities are typically used for known issues (e.g. a specific HMRC enquiry, a contemplated tribunal claim) or for categories where the buyer needs maximum protection (e.g. tax for the pre-completion period). Caps and time limits on indemnities are negotiable; market standard is the same as warranty caps (100% of consideration with claims under £500 ignored, 24 months general / 7 years tax).

6. Legal Due Diligence: Surviving the Buyer's Investigative Process

Due diligence is the buyer's structured investigation of the business, typically running from heads of terms to exchange — three to six weeks for a single-site café, longer for a multi-site group. A well-prepared seller cuts this period in half by populating the data room before marketing.

Standard data room categories

• Corporate: certificate of incorporation, articles, register of members, last three years of filed accounts and confirmation statements.
• Property: lease, deed of variation, rent review memoranda, landlord correspondence, premises licence, food hygiene rating reports.
• Financial: management accounts (monthly, last 36 months), bank statements (24 months), VAT returns, Corporation Tax returns, payroll register, supplier invoices, EPOS reports.
• Employment: contracts for all staff (Section 1 statements), handbook, training records, disciplinary and grievance files, holiday and sickness records.
• Contracts: coffee, milk, food, packaging, waste, energy, EPOS, accountancy retainer, insurance policies.
• Intellectual property: trade mark registrations, domain ownership, social media account credentials, photography licences.
• Compliance: HACCP plan, allergen records, alcohol licence DPS, public liability and employers' liability certificates.

Most buyers issue a written DD questionnaire of 80-200 questions; well-prepared sellers can respond in a week. Poorly prepared sellers spend a month chasing documents from suppliers and former accountants, lose deal momentum, and find their buyer asking for a price reduction by week six.

7. Heads of Terms (HoT): Structuring the Non-Binding Initial Agreement

Heads of Terms (also called Letters of Intent or HoT) are the document that converts a verbal offer into a written framework for the transaction. They are typically two to four pages, signed by both parties, and structured as expressly non-binding except for a small number of binding provisions: exclusivity, confidentiality, costs and (usually) governing law.

Core HoT contents

• Purchase structure (asset or share).
• Headline price and deferred consideration mechanism.
• Treatment of SAV, holiday accrual and other completion adjustments.
• Conditions precedent (landlord consent, lender approval, satisfactory due diligence).
• Exclusivity period (typically 6-10 weeks).
• Confidentiality and announcement protocol.
• Costs (each party bears its own).
• Target completion date.

Exclusivity

An exclusivity (or "lock-out") clause is the seller's main concession at HoT stage — for the exclusivity period, you cannot solicit or accept competing offers. Exclusivity is genuinely valuable to the buyer (they are about to spend £8,000-£15,000 on legal and accounting fees on a single deal) and the seller is entitled to negotiate a tight, defined period with carve-outs. Standard 2026 practice is 8 weeks, extendable by mutual agreement, with the seller's right to terminate early if material terms change or DD findings are unacceptable to either side.

8. APA vs. SPA Side-by-Side Comparison Matrix

Rule of thumb: sub-£300,000 single-site café sale = APA almost always. £750,000+ multi-site or trophy single-site = SPA usually. £300,000-£750,000 = genuine choice driven by company history, tax position and buyer preference.