Asset Sale vs Share Sale in a Business Sale: What’s the Difference?
Asset Sale vs Share Sale in a Business Sale: What’s the Difference?
Applies across all Australian states
When buying or selling a business in Australia, one of the first decisions is how the deal will be structured — as an asset sale or a share sale.
The choice affects risk, tax, legal obligations, and how the transaction is documented. Each approach is governed by different legal frameworks, so understanding the difference is essential before you sign.
What is an Asset Sale?
In an asset sale, the buyer acquires selected business assets — such as equipment, stock, goodwill, intellectual property, and contracts.
The legal entity (the company) remains with the seller. Only specific items are transferred under a business sale agreement, governed by general contract law. Often used when the buyer wants to avoid taking on hidden liabilities or when the business includes tangible assets.
What is a Share Sale?
In a share sale, the buyer purchases the shares in the company that owns the business. This means the legal entity remains the same — including all its contracts, licences, assets, and liabilities.
Share transfers are regulated under the Corporations Act 2001 (Cth) and must follow procedures such as shareholder approval and ASIC compliance where applicable. Typically used when the business needs to maintain continuity — for example, with clients, staff, or licensing bodies.
Key Differences
Aspect | Asset Sale | Share Sale |
Legal Entity | New ownership of assets | Company ownership changes |
Liabilities | Usually excluded (unless agreed) | All liabilities transfer automatically |
Employees | Must be re-hired by buyer | Usually retained without change |
Contracts & Licences | May require novation or reapproval | Typically remain in place |
Tax Treatment | Buyer may depreciate assets | Seller may access Capital Gains Tax (CGT) concessions |
Legal Framework | Contract law & sale of goods | Corporations Act 2001 (Cth) |
Why It Matters
- Buyers may prefer asset sales to limit risk
- Sellers often prefer share sales for a clean exit and potential Capital Gains Tax (CGT) concessions
The right structure depends on your risk appetite, business type, and tax planning. Legal and accounting advice is crucial before deciding.
#BuyingBusiness #BusinessSale #DueDiligence
Disclaimer: This article provides general information only and does not constitute legal, tax, or financial advice. Always seek professional guidance before entering into a business sale agreement. Laws and policies may change.
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FAQ:
Q1: Which is better — asset sale or share sale?
It depends on your goals. Buyers prefer asset sales for lower risk. Sellers often favour share sales for clean exits and tax benefits.
Q2: Do employees automatically transfer?
Not in an asset sale — they must be offered new employment. In a share sale, they usually stay employed under the same entity.
Q3: Can I keep customer contracts in an asset sale?
Only if the contract allows assignment or the other party agrees. Share sales keep contracts in place, since the legal entity doesn’t change.
Q4: Is one option better for tax?
That depends on whether you’re the buyer or seller. Tax outcomes differ based on the deal structure, entity type, and available concessions.
Q5: Can we negotiate a hybrid approach?
Yes. Some deals involve partial asset transfer and partial shareholding. Legal and tax advice is critical in these cases.
(Note: This FAQ provides general guidance only. Rules may vary depending on your structure and industry.)