Selling or buying a business involves more than just agreeing on a price. One of the first and most important decisions is how the transaction will be structured — as an asset sale or a share sale.
Each option has very different legal, tax and commercial implications. Understanding the distinction is essential for both sellers and buyers to protect their interests and avoid unintended liabilities.
In this article, we explain the key differences between asset and share sales and when each structure might be appropriate.
What is an asset sale
In an asset sale, the buyer purchases specific business assets from the seller. These typically include:
- Goodwill
- Business name and intellectual property
- Equipment, stock and fittings
- Contracts, licenses and permits
- The lease of the premises (by assignment or new lease)
- Plant and equipment
- Customer records
The buyer does not acquire the actual legal entity (such as the company) that owns the business. Instead, the buyer starts operating the business through their own entity from completion.
An asset sale allows the buyer to handpick which assets and liabilities are acquired and which are excluded. This gives greater flexibility and control over risk.
What is a share sale
In a share sale, the buyer purchases all of the issued shares in the company that owns and operates the business. The company remains intact and continues to own all assets and liabilities, but its ownership changes.
This structure is often used where:
- There are valuable existing contracts that cannot easily be assigned
- The business relies on licences or accreditations held in the company name
- The company has an established trading history or branding that is important to retain
- The seller wants a clean exit with fewer post completion obligations
The buyer inherits all existing liabilities of the company, including those that may not be known at the time of purchase. This makes due diligence and warranties particularly important.
Key differences at a glance
|
Issue |
Asset Sale |
Share Sale |
|---|---|---|
|
Entity purchased |
Individual assets |
Ownership of the company |
|
Liability |
Buyer can exclude unwanted liabilities |
Buyer inherits all liabilities |
|
Employees |
Must be formally transferred |
Automatically continue |
|
Contracts and leases |
Must be assigned or re-signed |
Usually continue |
|
Tax treatment |
May trigger GST and capital gains tax on individual assets |
Shares may be subject to CGT, |
|
Due diligence |
Focused on assets and contracts |
Focused on entire company history and obligations |
Legal documentation
Each structure involves different legal documents:
- Asset sales require a business sale agreement, lease assignment, and individual asset transfers
- Share sales require a share sale agreement, company records review, and possibly shareholder approval or release of guarantees
Both structures may involve additional documents such as restraint of trade deeds, employee transfer letters and updated licensing or finance arrangements.
Risks to consider
In an asset sale:
- Employees must be offered employment and their entitlements carefully managed
- Licences and permits may not transfer automatically
- Key contracts may require third party consent
In a share sale:
- The buyer inherits all liabilities, including tax, employment, litigation and compliance risks
- The seller may be required to provide warranties, indemnities and post completion support
- Existing shareholders may have rights that need to be managed
Practical tip
There is no one size fits all answer. The right structure will depend on the nature of the business, the assets involved, the parties’ commercial objectives and tax advice. Sellers and buyers should obtain legal advice early in the negotiations to determine the best approach and document the deal properly from the start.
Disclaimer: This content is intended as general commentary and may not be applicable to your specific situation. It does not replace independent legal advice.
For a no-obligation consultation on various matters, you can contact us at (07) 3184 2424.