Selling your business is one of the most significant decisions an owner can make. Whether you are retiring, changing industries, or pursuing a new venture, understanding how to structure the sale is critical. One of the first decisions you will face is whether to sell the entire business entity or just its assets. Each option carries distinct legal, tax, and financial implications that can impact both the seller and the buyer.
This article explores the key considerations involved in each approach, helping you make an informed decision that protects your interests and maximises value.
1. Selling Your Business: Selling the Company (Share Sale)
In a share sale, you are selling your business entity itself. This means that the buyer takes over ownership of the company’s shares, along with all of its assets, contracts, and liabilities.
Legal implications
- Transfer of ownership: The company continues to exist in its current form. What changes is the ownership of its shares. The buyer steps into your shoes as the new owner, inheriting the company’s rights and obligations.
- Liabilities: Since the buyer takes over the entity, they also assume responsibility for its debts, employee entitlements, and potential tax obligations. This makes due diligence essential for both parties.
- Contracts and licences: Because the entity itself remains unchanged, most business contracts, leases, and licences will remain valid without the need for reassignment or new applications. This can simplify the transition.
Financial implications
- Tax treatment: From a seller’s perspective, the sale of shares may attract capital gains tax (CGT). Depending on your structure and how long you’ve held the shares, you may be eligible for CGT concessions or discounts.
- Pricing and valuation: Buyers may be cautious when purchasing the entity due to the potential for hidden liabilities. This could influence the sale price or result in negotiation around indemnities and warranties.
- Simplicity for ongoing operations: Because the buyer acquires the entire business, operations can continue without interruption. Staff, customers, and suppliers may see little change.
2. Selling Your Business Assets (Asset Sale)
An asset sale involves selling your business assets rather than the entire company. Assets may include tangible items such as equipment and property, and intangible assets such as goodwill, client lists, and intellectual property.
Legal implications
- Choice of assets: The seller can decide exactly which assets to include in the sale, offering flexibility in negotiations.
- Transfer of contracts: Each contract, lease, or licence must be assigned or transferred individually, often requiring third-party consent. This can create additional administrative work and delays.
- Liabilities remain with the seller: Unless specifically included in the agreement, the seller typically retains responsibility for existing debts, employee entitlements, and tax liabilities.
Financial implications
- Tax treatment: Different assets may attract different tax consequences. For example, the sale of depreciating assets may trigger balancing adjustments, while goodwill may be subject to CGT.
- GST considerations: Asset sales often attract GST unless the transaction qualifies as the sale of a “going concern.” To meet this exemption, specific criteria must be satisfied, including that the business continues to operate until settlement.
- Valuation complexity: Each asset needs to be valued individually, which can make negotiations more time-consuming. However, sellers can sometimes achieve a higher combined return by selling only valuable components of the business.
3. Deciding Which Option Is Right for You
There is no one-size-fits-all answer. The right structure depends on your business type, goals, and tax circumstances.
| Consideration | Share Sale | Asset Sale |
| Liabilities | Transferred to the buyer | Remain with the seller unless agreed otherwise |
| Contracts & Licences | Usually stay intact | May need reassignment |
| Complexity | Often simpler legally | Can be more complex administratively |
| Tax outcome | Capital gains on shares | CGT and other taxes depending on asset type |
| Risk to buyer | Higher (inherits liabilities) | Lower (selects assets only) |
| Flexibility | Low | High |
Key question: What does your buyer want?
Buyers often prefer asset sales to avoid taking on unknown liabilities. Sellers, however, may favour a share sale for simplicity and potential tax advantages. Negotiations usually balance these competing interests, with legal advice playing a vital role.
Key question: What are your future plans?
If you plan to wind down the company after selling its assets, consider the administrative costs of deregistration and final tax lodgements. If you sell the entire entity, these obligations transfer to the buyer.
4. The Role of Due Diligence
Regardless of the sale type, both parties should conduct comprehensive due diligence.
For sellers, this means ensuring your records are accurate, contracts are up to date, and liabilities are clearly documented.
For buyers, it means verifying the company’s financial health, compliance status, and ownership of key assets.
Common due diligence items include:
- Business financial statements and tax returns
- Employment agreements and superannuation records
- Supplier and customer contracts
- Intellectual property registrations
- Outstanding debts and liabilities
A clear due diligence process builds trust and can prevent disputes later.
5. Legal Documentation and Professional Support
A business sale involves several legal documents, such as:
- Sale agreement (either Share Sale Agreement or Asset Sale Agreement)
- Disclosure letter or due diligence report
- Assignment or novation of leases, licences, and contracts
- Restraint of trade clauses to protect goodwill
- Warranties and indemnities covering undisclosed liabilities
Having an experienced business lawyer ensures your documents accurately reflect the agreed terms and protect you from future claims. They can also work alongside your accountant to help you structure the deal for optimal tax outcomes.
6. Common Mistakes to Avoid
- Rushing negotiations: Many issues arise when sellers accept early offers without understanding the implications of each structure.
- Overlooking liabilities: Failing to identify outstanding debts or employment obligations can cause future legal complications.
- Ignoring tax consequences: Tax considerations can significantly affect the overall value of the transaction.
- Insufficient documentation: Verbal agreements or vague terms can create risk after settlement.
FAQs
1. What is the main difference between selling a business and selling its assets?
Selling the business (share sale) transfers ownership of the entire entity, including its assets and liabilities. Selling assets transfers only selected assets, with the seller retaining ownership of the entity and its remaining obligations.
2. Which option is better for tax purposes?
This depends on your circumstances. Share sales may attract CGT but could qualify for small business CGT concessions. Asset sales can involve multiple tax treatments for different asset types. Always seek professional tax advice before proceeding.
3. Do I need to transfer employees in an asset sale?
In most cases, employees are not automatically transferred in an asset sale. The buyer can choose which employees to offer new contracts to, and accrued entitlements are usually settled by the seller.
4. What is a “going concern” exemption for GST?
If the business is sold as a going concern, and both parties are registered for GST, the sale may be GST-free. Specific conditions must be met, including that the business continues to operate until settlement.
5. Do I need a lawyer to sell my business?
Yes. A lawyer can help you structure the sale, prepare contracts, and ensure all legal obligations are met. Selling a business is a complex process, and professional advice can protect your financial and legal interests.
Final Thoughts
Choosing between selling your business entity or just its assets can have lasting financial and legal consequences. The best option will depend on your goals, the buyer’s preferences, and the business’s structure.
At Fulljames Law, we help business owners navigate these crucial decisions with clarity and confidence. From preparing the right documentation to negotiating fair terms, our experienced team ensures your business sale runs smoothly from start to finish.
If you are considering selling your business, contact Fulljames Law for expert legal advice tailored to your situation.
The information provided in this article is general in nature and does not constitute legal advice. It has been prepared without taking into account your specific circumstances.