Asset Sale vs Share Sale: Which Is Better for Selling a Business in Sri Lanka?

If you’re selling a business in Sri Lanka, one decision quietly determines almost everything that follows:

• Do you sell the assets and goodwill? (Asset Sale)
  or

• Do you sell the company by transferring shares? (Share Sale)

Both are valid. Both can work.
But they carry very different risk, tax, documentation, and buyer expectations.

This guide explains, in practical terms, how each structure works in Sri Lanka, what buyers usually prefer, and how to choose the safest path for your situation.

What’s the difference? (Simple definitions)

1) Asset sale

In an asset sale, the buyer purchases specific business assets and rights, such as:

• stock / inventory

• equipment, machinery, furniture

• vehicles used in the business

• brand name, signage, logo

• website, domain, social pages

• customer base and systems (where appropriate)

• lease rights (only if transferable)

The buyer typically does not automatically “inherit” the seller’s past liabilities—unless the agreement specifically says so (or liabilities arise through the way the transfer is handled).

This is why asset sales are often seen as the “cleaner” option for SME deals.

2) Share sale (company sale)

In a share sale, the buyer purchases the shares of the company (usually a (Pvt) Ltd). That means the buyer takes over the same legal entity.

The company stays the same company — same name, same registration, same contracts (usually), same licences (often), same history.

That also means the buyer may inherit unknown liabilities inside the company (tax exposure, claims, compliance issues), which is why share sales require deeper due diligence and stronger legal protections.

Sri Lanka’s Companies Act framework treats share transfers as a formal process through the company’s records and procedures (share register, transfer forms, board actions, etc.). For example, model provisions commonly allow a board to refuse registration of a share transfer in certain situations such as unpaid sums related to the share. Department of the Registrar of Companies

The Sri Lanka reality: which one do buyers usually prefer?

For many Sri Lankan SME deals, serious buyers often lean toward asset purchases, because they feel safer and simpler:

• fewer historical liabilities

• easier to “start fresh” operationally

• less fear of hidden tax/compliance issues

Share sales still happen (and sometimes are the best option), but usually when continuity is essential, especially for:

• licences that are tied to the company

• long-term contracts in the company name

• businesses where re-registration would disrupt operations

• companies with strong documentation and clean compliance history

The big differences that matter (in real life)

1) Liability and risk exposure

Asset sale:

• Buyer takes what’s listed in the agreement (assets + selected rights)

• Past liabilities generally stay with seller/company (unless specifically assumed)

Share sale:

• Buyer steps into the same company

• The company’s past can become the buyer’s future problem (tax, disputes, compliance)

This is why share sale agreements usually contain heavier:

• warranties and representations

• indemnities

• disclosures schedules
  (and why buyers negotiate harder)

2) Contracts and continuity (suppliers, customers, lease)

Asset sale:

• Contracts often need assignment or fresh agreements

• Landlord consent becomes a major factor for location businesses

Share sale:

• Many contracts continue under the same entity (since the company remains the contracting party)

• But some contracts may have change-of-control clauses (so you still need to check)

Practical truth:
Many deals in Sri Lanka fail not because of price — but because the landlord refuses lease transfer or demands new terms late in the process.

3) Licences and regulatory approvals

This is one of the biggest reasons a share sale may be chosen.

Asset sale:

• some licences can transfer; many cannot

• the buyer may need to re-apply or re-register operations

Share sale:

• licences may remain with the company (because the company remains the same licence holder)

• but regulators may require notification/approval depending on the industry

Never assume transferability. Always verify early.

4) Tax and duties (high level)

Tax depends on what exactly is being sold (shares vs assets, land/buildings vs equipment, etc.) and the seller’s status.

A few high-level Sri Lanka points:

• Capital Gains Tax (CGT): Sri Lanka IRD guidance states CGT applies on gains from realization of investment assets, and indicates different rates such as 10% for “other than companies” and 30% for companies (context-specific). Inland Revenue Department

• Stamp duty: IRD notes stamp duties on immovable property and certain movable property were devolved to Provincial Councils (so rates and administration can depend on the province). Inland Revenue Department

What this means practically:
If your deal includes land/buildings, stamp duty issues can quickly become a major part of negotiation and structuring. If you’re selling shares vs selling assets, the tax and duty profile can change.

This is exactly why you should bring tax thinking into the conversation early — not at the last week.

5) Speed and complexity

Asset sales can be simpler in SMEs if there are not too many licences/contracts needing approvals.

Share sales can feel smoother for continuity but usually require:

• deeper diligence

• heavier negotiation of legal protections

• more careful completion steps

Pros and cons for sellers (Sri Lanka SME perspective)

If you sell via an asset sale

Pros

• Wider pool of buyers (many prefer it)

• Cleaner risk story for buyers

• You can keep unwanted liabilities out of the deal

• Often easier to keep the sale private early

Cons

• You may need landlord consent, contract assignments, licence re-registrations

• Handover can be operationally heavier (utilities, merchant accounts, registrations, etc.)

• If the seller is a company selling assets, you still need to decide what happens to the company after the sale

If you sell via a share sale

Pros

• Continuity can be smoother (same entity, many contracts remain in place)

• Useful when licences/contracts are tied tightly to the company

• Often easier to “transfer the whole system” without operational disruption

Cons

• Buyers typically demand deeper due diligence

• Greater negotiation over warranties/indemnities

• If your compliance is messy, serious buyers may walk away or insist on heavy risk protections

Pros and cons for buyers (why they push for one structure)

Why buyers like asset sales

• Lower fear of inherited liabilities

• Easier to reset systems, renegotiate supplier terms

• Less risk of hidden tax/non-compliance history

Why buyers like share sales (sometimes)

• Continuity: banking relationships, contracts, licences may continue

• Less disruption for ongoing operations

• Better fit for regulated industries or contract-heavy businesses

When an asset sale is usually better (common Sri Lanka scenarios)

An asset sale is often the safest option when:

• the business is owner-run and informal

• accounts are not clean enough for deep diligence

• the buyer is new and risk-averse

• there is uncertainty around tax/compliance history

• the business is mainly “operations + location + staff” (retail, cafés, salons, services)

• you want a clean break from liabilities and past issues

In Sri Lanka SME reality, this is a large portion of deals.

When a share sale is usually better (common scenarios)

A share sale may be more practical when:

• key licences are tied to the entity and re-applying is difficult or risky

• there are long-term customer contracts in the company name

• the business has strong documentation and compliance history

• continuity is essential (disruption would harm revenue)

• lease assignment is uncertain but the landlord will accept a change of shareholders more easily than a lease transfer (this happens in some cases)

What a share transfer involves (high-level)

A share sale isn’t just “shake hands and change owners.”

At a high level, it typically involves:

• a share purchase agreement (SPA)

• share transfer instrument/forms

• board procedures and updates to company records (share register, resolutions, etc.)

Companies Act-based provisions commonly address how share transfers are registered and allow boards, in certain cases, to refuse registration (for example, if amounts payable on the share are due but unpaid). Department of the Registrar of Companies

(Your lawyer will handle the exact mechanics, but the key point is: share sales have a formal corporate process.)

Due diligence: what changes based on structure?

Asset sale diligence (what buyers focus on)

• Asset list + proof of ownership

• Stock valuation method

• Lease terms and landlord consent

• Licence transferability

• Staff plan (continuity, EPF/ETF compliance status)

• Digital assets transfer plan (domain, social media admin, Google Business Profile, software logins)

Share sale diligence (deeper and wider)

Everything above, plus:

• tax filings and any exposure risk

• known/unknown liabilities

• litigation/disputes

• contracts and obligations

• company records, governance, charges/security interests

• warranties/indemnities negotiation

Typical documents you’ll see

Asset sale documents

• Asset Sale Agreement + schedules (assets, stock, included items)

• Lease assignment/consent letters (if needed)

• IP/brand transfer clauses

• Handover support schedule

Share sale documents

• Share Purchase Agreement (SPA)

• Share transfer documents + board/shareholder resolutions as needed

• Disclosure schedules + warranties/indemnities

• Completion steps checklist (banking, authority notifications if required)

A practical decision framework (how to choose without overthinking)

Ask these questions early:

1. Are there licences that must stay with the current entity?
   If yes, share sale may be necessary or easier.

2. Will the landlord allow lease assignment?
   If no, you must solve this before you promise an asset sale.

3. How clean is compliance and tax history?
   If messy, buyers will resist share sales or demand heavy protections.

4. Does the buyer need continuity immediately?
   If yes, share sale may reduce disruption.

5. Is the business mostly assets + operations, or entity + contracts?
   Operations-based businesses often fit asset sales. Contract/licence-heavy businesses often fit share sales.

Common mistakes Sri Lankan sellers make

• choosing structure based on “what sounds easier”

• ignoring landlord consent until the end

• assuming licences transfer automatically

• doing a share sale without preparing for deep diligence

• accepting instalments with no security

• having no written scope (what’s included/excluded)

Frequently asked questions

Is an asset sale safer than a share sale in Sri Lanka?
Often, yes — because buyers generally inherit fewer historical liabilities. But it depends on licences, contracts, and lease constraints.

Can I sell my (Pvt) Ltd company by transferring shares?
Yes, that is the core mechanism of a share sale, but it requires proper legal documentation and corporate record updates. Department of the Registrar of Companies

Do I pay capital gains tax when selling a business?
Tax depends on the structure, what’s being sold, and the seller’s status. IRD guidance describes CGT on realization of investment assets and shows different CGT rates in different contexts. Inland Revenue Department

Does stamp duty apply when a business includes property?
Stamp duties on immovable property are administered via Provincial Councils according to IRD. Inland Revenue Department

Final thoughts

Asset sale vs share sale is not about which one is “better” in theory.

It’s about which one is more realistic and safer for your specific business in Sri Lanka.

If you choose the right structure early, everything becomes smoother:

• confidentiality is easier to manage

• buyer discussions become clearer

• legal work becomes cleaner

• completion becomes less stressful

If you choose the wrong structure, the deal often collapses late — after weeks of effort.

If you want to explore a sale quietly and properly, BizExit.lk can help you assess the best structure, prepare the information buyers need, and manage a staged, private process with vetted buyers.

Short practical disclaimer

This article is general information only and not legal or tax advice. For any specific sale structure, document drafting, or tax outcome, consult a qualified lawyer and/or tax professional in Sri Lanka.