Whether you’re looking to start fresh, expand your operations, or exit a business you’ve built over the years, understanding how business transactions actually work is essential. The structure you choose affects everything from tax implications to the liabilities you take on.

At Complete Legal, helping people start, buy and sell businesses is one of the main things we do. If you’re starting a business from scratch, we can help with the legal structure, partnership or shareholders agreements, your commercial or retail lease, and drafting your terms of business.

If you’re acquiring or selling an existing business, we can help with that too.

There are three main ways that a business transitions to new ownership. Each has distinct advantages and considerations depending on your circumstances.

Business Sale Agreement

This is the most common structure. A business sale agreement is a contract where the buyer purchases the actual business operation, including everything it needs to keep running in the same way it ran before.

The contract usually includes the purchase of key business assets such as:

• Goodwill
• The business trading name (registered business name)
• Customer or client lists
• Stock
• Plant and equipment
• Intellectual property

It often also involves the transfer or assignment of important arrangements like a commercial or retail lease for the premises, supplier or customer contracts, and sometimes the transfer of employees.

In a business sale agreement, the seller is usually the entity that operates the business. That can be an individual, a number of individuals, or most commonly, a company. In this scenario, the shares in the company are not sold. Rather, the assets of the company (being the business and all of the associated assets listed above) are sold.

Usually, if a business is sold in this manner and includes all the things necessary to keep it running, it constitutes the “supply of a going concern“, meaning there is no GST payable in addition to the purchase price.

Asset Sale Agreement

An asset sale agreement is much more narrow than a business sale agreement. It is a contract where the buyer purchases only specific assets listed in the contract.

For example, the owner of an existing equipment hire business might be looking to expand. The buyer might already have their own premises and trading name, so rather than buying a competitor’s entire business, they only purchase plant and equipment to add to their existing fleet. The buyer essentially cherry-picks the assets they want and does not acquire everything required to run the business. There is no transfer of shares in the company or units in the unit trust.

It may be harder to treat an asset sale agreement as a going concern for GST purposes, so buyers need to factor this into their plans and seek accounting advice before entering a transaction of this type.

Sale of Shares in a Company (or Units in a Unit Trust)

A company or trust is an entity unto itself, capable of owning assets, buying and selling property, running a business, and entering into contracts. A share or unit sale agreement is a contract where the buyer purchases the shares in the company or units in the unit trust that owns and operates the business. The business does not “move” to a new owner. Instead, the buyer takes control of the same company or trust that has always run it.

The upside of this is that usually the parties do not need to worry about things like transferring customer contracts, transferring employees and dealing with employee entitlements, or establishing new supplier agreements.

The potential downside for the buyer is that acquiring shares in a company means you also acquire the company’s history. For example, if the company is carrying tax debt or other liabilities, or may be the subject of some kind of claim or litigation in the future, this is a risk the buyer essentially assumes. In almost all cases, if a person or entity buys shares in a company or units in a unit trust, they will also need to become or nominate a director of the company or the corporate trustee of the unit trust.

Financial and accounting advice and due diligence is critical in any business acquisition but is particularly important if you are contemplating buying shares or units in an existing entity. You need a thorough understanding of the entity’s asset and liability position, including any taxation history, to ensure you are not inadvertently taking responsibility for liabilities you never intended to.

A Note for Sellers

The above is fairly buyer-centric, but we also act for sellers in relation to all of these transaction types. From the seller’s perspective, the main focus should be accurately defining what is being sold.

If the sale is subject to the transfer or assignment of an existing lease, or the granting of a new lease of existing commercial or retail premises of which you are the tenant, the landlord’s consent will be required.

If there are assets in the business being sold that are subject to some sort of security interest (including a registration on the Personal Property Securities Register), steps will need to be taken to discharge the security interest, usually by paying out any outstanding debt.

You will also need to start compiling things like plant and equipment lists, stock lists, and details about any transferring employees, including accrued employment entitlements.

Get the Right Advice Before You Sign

As you can see, there is quite a bit involved to effect a transaction like this properly and comprehensively. Whether you’re buying, selling, or starting a business, having the right legal support from the outset can save you time, money, and stress down the track.

Contact us or book a free chat to discuss your situation.