Selling Your Philippine Company: Share Sale or Asset Sale, and What Buyers Will Check

The basic difference: does the buyer take the company or what is inside it?

In a share sale the company changes owners; in an asset sale the assets change owners. Almost every other difference follows from this.

Share sale. You transfer your shares to the buyer and the company itself is unchanged: its permits, tax registration, bank accounts, employment contracts, client contracts and the sponsorship of foreign employees' visas all stay where they are. The business continues without interruption and many permits and contracts need not be redone. The price is that the buyer inherits everything the company did before, including undiscovered tax deficiencies, open audits and latent labour claims, so buyers investigate carefully and ask the seller for warranties and indemnities covering the past.

Asset sale. The company sells equipment, inventory, brands, client contracts, leases and similar items to the buyer individually. Buyers are often more comfortable because they do not take on the company's history, but each asset and contract must be transferred separately, some contracts need the other party's consent, some permits cannot be transferred and must be obtained afresh by the buyer, and employees have to be dealt with under labour law, either separated or re-hired by the buyer. Afterwards the old company remains yours to clear with the tax bureau, settle and dissolve; see closing a company in the Philippines.

Neither route is always better. Where value depends on permits and long-term contracts and the workforce is stable, buyers lean towards shares. Where the history is messy or tax positions are uncertain, buyers lean towards assets, or towards a share deal with a lower price and part of it held back.

Which structure fits your company

Look at four things: transferable permits, transferable contracts, a clean history and who the buyer is.

• Permits and registrations. If most of the value sits in a licence or incentive registration that cannot be transferred, an asset sale leaves the most valuable part in the old company, and buyers will usually only consider buying shares.
• Contracts. Check major client contracts, leases and distribution agreements for change-of-control and anti-assignment clauses. A share sale may trigger change-of-control provisions; an asset sale may need consent to assignment. Read the contracts before choosing.
• History. Are annual filings complete, audited statements on time, any open cases or audits pending with the tax bureau, any labour complaints? The messier the history, the more a buyer prefers assets or a share deal with escrow. How to clean up before a sale is covered in when due diligence finds old tax problems.
• The buyer. If the buyer is foreign or foreign-owned, check the foreign ownership limits for your industry and whether a share sale would push foreign equity above them; see a share transfer breaching the foreign equity cap.

One point is often missed: whether other shareholders have a right of first refusal. If the articles or a shareholders' agreement contain one, offer the shares to them first under the agreed procedure; for what happens when this blocks an exit, see a right of first refusal blocking your exit.

Write down your answers to these four questions before talking to any buyer. The answers usually point clearly to one structure, and they also tell you which documents you will need to produce first. If two structures remain possible, ask a lawyer and an accountant to compare them on your actual numbers rather than on general rules of thumb.

Clean up first: what due diligence looks at before anything else

The price a buyer offers depends heavily on how many problems due diligence finds, so putting your house in order matters more than finding a buyer quickly.

1. Corporate records. Articles, past GIS filings and the stock and transfer book should match actual ownership, and earlier share transfers should have completed their tax formalities; for transfers that did not, see an old share transfer without tax clearance.
2. Accounts and tax. Recent audited statements, income tax and VAT returns and withholding certificates should be complete and reconcilable, with no unresolved matters at the tax bureau.
3. Permits. Business permits, industry licences and incentive registrations should be current, with no renewals stuck.
4. Contracts. Originals and terms of major client, supplier, lease and loan contracts, and any breaches or disputes.
5. People. Employment contracts, records of statutory contributions, pending labour complaints, and the visa and permit status of foreign staff.
6. Assets and IP. Equipment, inventory, trademarks, domains and software licences registered in the company's name.

Put these in an indexed folder so that anything a buyer asks for can be produced quickly; that alone counts in your favour. Problems found along the way should either be fixed or prepared for honest disclosure. A concealed problem that the buyer uncovers usually costs more than one disclosed and explained.

Start with a candid internal review rather than waiting for the buyer's questionnaire. Ask your accountant and corporate secretary to list everything they know is late, missing or inconsistent, then decide item by item whether to fix it now, quantify it for disclosure or accept a lower price. A seller who already knows the weak points can explain them calmly, propose a remedy and keep control of the negotiation. A seller who learns of them from the buyer's lawyers is negotiating on the back foot, often under time pressure, and usually ends up conceding more than the issue was worth. Budget enough time for this stage; corrections at the tax bureau and the SEC rarely move as quickly as owners expect.

Finding buyers and negotiating

Typical buyers are competitors, partners up or down the supply chain and investors who know the Philippine market; keep things confidential first and talk price second.

• Confidentiality first. Before sharing any financial or client information, sign a non-disclosure agreement limiting use of the material to evaluating the deal.
• Release information in stages. Share an overview first, and open detailed records only after a buyer shows serious intent and signs a letter of intent, so that sensitive information does not end up with a competitor.
• Letter of intent. Set out the structure, the price or pricing method, the due diligence period, any exclusivity and the main conditions. It is usually not binding on completion but prevents misunderstandings on key points.
• Price structure. Beyond the headline figure, agree how it is paid: in full, in instalments, partly in escrow or partly on performance. In share deals buyers often hold back part of the price to cover historical problems discovered after completion.
• People. Settle whether the buyer wants you or key staff to stay on for a period and whether non-compete undertakings are expected.

Brokers and advisers can help find buyers, value the business and run due diligence, but check how they are paid and how they protect confidentiality. Be very wary of any "buyer" who asks for the company seal, bank tokens or original documents before any money has changed hands.

Keep a log of every party that received information, what they received and when, together with signed confidentiality agreements. If talks with one buyer fail, that log tells you what a competitor now knows and helps you enforce confidentiality if information is misused. Tell staff only when you must, and plan what you will say, because rumours of a sale can unsettle employees and clients long before anything is signed.

From signing to completion: sequence and sticking points

Signing and completion are rarely on the same day; conditions must be satisfied in between, and the exchange of money for control needs a deliberate sequence.

1. Sign the agreement. A share or asset purchase agreement setting out price, payment, each side's representations and warranties, indemnities, conditions to completion and remedies for breach, drafted and reviewed by lawyers.
2. Satisfy conditions. Typical ones are waivers of first refusal by other shareholders, consents from key counterparties, any required regulatory approvals or filings, and resolution of agreed historical issues.
3. Complete. In a share deal the buyer pays, you deliver the share certificates, resign as director and officer and help update the stock and transfer book; the tax formalities follow, then the updated GIS at the SEC and new bank signatories. In an asset deal assets are delivered item by item, contracts assigned, staff dealt with and the proper invoices issued.
4. After completion. Conditions for releasing escrow or instalments, how post-completion discoveries are handled, and any period during which you stay on or assist.

Common sticking points: share transfers stuck because the tax formalities are incomplete; banks slow to change signatories, so the new owners cannot run the account; key client contracts terminated on a change of control. Your responsibility does not necessarily end at completion; see being pursued after selling a company.

For your specific case consult a licensed lawyer and a certified public accountant; this article is not legal or tax advice.

Build a closing checklist early, with each condition, the person responsible and the expected date. Most delays come from small items nobody owned, such as a missing board certificate or an unsigned consent, rather than from the big commercial points.

How YIXING can help

Whether a sale succeeds often depends less on finding a buyer than on producing a set of company records that survives due diligence.

YIXING holds SEC registration (CS202009551), Bureau of Immigration accreditation (BI Accreditation No. CA-202624381-1, valid until 2027-06-30) and DOLE and PRA accreditation. We can:

• obtain and reconcile the company's SEC records and organise the stock and transfer book and past share movements;
• coordinate with accountants to review past filings, identify issues a buyer is likely to raise and arrange corrections;
• check permits, foreign equity and foreign staff visas and assess how the transaction affects them;
• at completion, handle the updated GIS, bank signatory changes and changes to visa sponsorship for foreign employees;
• after an asset sale, wind up or dissolve the old company through our company setup and closure services and compliance retainer.

Transaction documents, valuation and tax planning should be handled by licensed lawyers and certified public accountants, and we can coordinate with them. We cannot promise that a deal will close or at what price.

Owners who start preparing a year or so before they intend to sell, rather than when a buyer appears, usually negotiate from a stronger position, because the issues a buyer would use to cut the price have already been dealt with.

For your specific case consult a licensed lawyer and a certified public accountant; this article is not legal or tax advice.

If you are still deciding whether to sell, close or keep running the company, we can also lay out what each path requires on the registration, tax and visa side, so that you can compare them on facts rather than impressions before you approach any buyer.