Asset vs Share Purchase in the Philippines: How Each Deal Works

The main difference is what changes hands. In a share purchase, the buyer acquires shares of the target corporation from its existing stockholders. The corporation itself continues to exist, keeps its assets, contracts, licenses, and liabilities. In an asset purchase, the buyer acquires specific assets — and sometimes assumes specified liabilities — of the seller, but does not acquire the corporation. Because the Revised Corporation Code of the Philippines treats a corporation as an artificial being with the right of succession, a share purchase transfers ownership of the corporation indirectly, while an asset purchase transfers property directly. The choice affects liability exposure, tax treatment, third-party consents, and the corporate approvals required.

What a share purchase involves

In a share purchase, the buyer deals with the stockholders, not the corporation. Title to the shares passes by endorsement and delivery of the stock certificates, with the transfer recorded in the corporation's stock and transfer book.

The corporation survives the transaction. Its contracts, permits, leases, and pending obligations remain with it. That continuity is the main commercial attraction — and the main risk, because hidden or contingent liabilities stay inside the corporation the buyer now controls.

Under the Revised Corporation Code, shares in a stock corporation may be divided into classes or series, and the classification of shares and their corresponding rights, privileges, or restrictions must be indicated in the articles of incorporation. A buyer must therefore check the articles of incorporation and the certificate of stock to confirm what rights attach to the shares being sold. Preferred shares, for instance, may carry preferences in dividend distribution and in the distribution of corporate assets upon liquidation.

Control follows the shares. The board of directors exercises the corporate powers, conducts all business, and controls all properties of the corporation. Directors are elected by the stockholders, so acquiring a controlling shareholding generally allows the buyer to change management through a proper election.

What an asset purchase involves

In an asset purchase, the buyer selects the assets it wants — equipment, inventory, real property, intellectual property, or an entire business line — and the seller retains the corporation and whatever is not sold. Liabilities transfer only if the buyer expressly assumes them or if law provides otherwise.

Because the corporation is not being acquired, the buyer does not automatically inherit the seller's corporate history, pending claims, or unpaid obligations. This is why asset deals are often preferred where the target's liability profile is unclear.

The trade-off is friction. Each asset must be transferred under the law governing it. Real property requires a separate deed and registration. Contracts generally need the counterparty's consent to be assigned. Permits and licenses usually cannot simply be carried over and must be applied for anew by the buyer's own entity.

How a corporation can dispose of assets or effect a merger

If the seller is a corporation and the transaction amounts to a sale, lease, exchange, mortgage, pledge, or other disposition of all or substantially all of its corporate property, the Revised Corporation Code requires stockholder approval. Holders of nonvoting shares are entitled to vote on that matter. A corporation may also pursue a merger or consolidation, which is likewise a matter on which nonvoting shares may vote.

Where the parties instead choose a share-for-share combination, the merger or consolidation route requires the approvals set out in the Code and the filing of the required documents with the Securities and Exchange Commission.

Practical differences that decide the structure

Liability. A share purchase keeps existing liabilities inside the corporation. An asset purchase leaves them with the seller unless expressly assumed.

Continuity. A share purchase preserves the corporation's contracts, permits, and corporate existence. An asset purchase requires fresh transfers and applications.

Approvals. An asset sale involving all or substantially all of the corporate property triggers a stockholder vote. A share purchase is generally a transaction between stockholders and the buyer, though the corporation's records must be updated.

Due diligence focus. In a share purchase, diligence centers on the corporation's liabilities, litigation, and corporate records. In an asset purchase, it centers on title to each asset and on the consents needed to transfer it.

Frequently asked questions

What is the difference between an asset purchase and a share purchase in the Philippines? A share purchase transfers ownership of the corporation by transferring its shares, so the corporation and its liabilities continue. An asset purchase transfers specific assets only, and liabilities pass only if assumed.

Does a buyer in an asset purchase inherit the seller's liabilities? Generally no. The buyer acquires only what the contract transfers, unless it expressly assumes particular liabilities or the law imposes them.

When is stockholder approval required for a corporate sale of assets? When the sale covers all or substantially all of the corporate property. The Revised Corporation Code lists that disposition among the matters on which even holders of nonvoting shares are entitled to vote.

Practical takeaways

• Choose a share purchase when continuity of contracts, permits, and corporate existence matters, and accept that existing liabilities come with the corporation.
• Choose an asset purchase when liability isolation matters more than continuity, and budget for transferring each asset and securing third-party consents.
• Confirm the rights attached to the shares from the articles of incorporation and the certificate of stock before buying into a stock corporation.
• Treat a disposition of all or substantially all of the corporate property as a matter requiring stockholder approval, including the vote of nonvoting shares.
• Conduct diligence matched to the structure: corporate records and liabilities for a share deal, asset titles and consents for an asset deal.

Primary sources

The rules discussed above are drawn from the following primary sources. Where the firm's library holds the document as a PDF it is embedded here in full; the rest are cited by title.

RMC No. 06-2003 — Clarifies certain issues relative to the services rendered by individual professional practitioners, general professional partnerships, entertainers and professional athletes who are subject to the Value-Added Tax or Percentage Tax beginning January 1, 2003 Digest | Full Text | Annex AOpen in Law LibraryDownload PDF

• REPUBLIC ACT NO. 11232 - AN ACT PROVIDING FOR THE REVISED CORPORATION CODE OF THE PHILIPPINES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.