There are two ways to sell/buy a business:
A business sale agreement where the assets of the business are sold; or
A share sale agreement (buy the shares in the Company)
Although both aim to transfer ownership of the business, they differ significantly in structure, liabilities, and tax implications.
Aspect | Share Sale Agreement | Business Sale Agreement |
|---|---|---|
Ownership Transfer | Buyer acquires shares, taking control of the entire company. The company retains ownership of the Business | Buyer acquires specific assets, not the entire business. Seller retains ownership of the Company |
Liabilities | Buyer inherits all liabilities of the company. | Buyer can selectively assume liabilities tied to assets. This is part of the negotiation, it can request all liabilities be discharged at settlement |
GST | Mostly GST will not apply | If not a going concern, GST will apply |
Transfer (stamp) duty | Generally not payable but subject to specific deal | Payable (there are some exemptions) |
Legal Complexity | More complex, as buyer assumes full business operations. Warranties are needed to protect the buyer | Often a simpler contract, but the buyer needs to conduct extensive due diligence to ensure all assets are acquired. |
Employee Considerations | Employees stay with the company unless otherwise agreed. | Employees may need to be transferred or retained by the seller. Subject to agreement between the parties |
Intellectual Property | If owned by company, no action. | Buyer must do thorough due diligence to ensure all include in Business Sale. |
The choice between a Share Sale Agreement and a Business Sale Agreement largely depends on your specific goals as a buyer or seller.
In our work, we see a tendency for parties to opt for a business/asset sale to limit exposure to liabilities for a buyer, and a seller may have tax or personal reasons why it wants to retain the company.
Getting the documents right is critical, and we are experts in working with our clients to achieve the desired outcomes.
Disclaimer: This advice is general in nature and is not intended to be legal advice.
If you would like legal advice, please call our office on (07) 5619 0440 and we would be pleased to assist you.
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