If you are looking to buy or sell a business, it is important to consider the legal, commercial and financial obligations that you will be responsible for as a result of the sale. These obligations will vary depending on whether you agree to buy or sell the whole business, its assets or shares in the company which owns the business.

This article will discuss the above, three means of purchasing a business and some key points you should consider depending on whether you are selling the business as the vendor or buying it as the purchaser.

What is an asset sale?

An asset sale involves the vendor agreeing to sell tangible assets like business equipment and/or intangible assets like business names and trade marks. Further examples of property that may be sold by the vendor in an asset sale include:

  • Plant, equipment and real estate
  • Inventory of trading stock
  • Trade marks, patents and other intellectual property (including websites)
  • Ongoing service contracts and supply agreements
  • Trading name and business goodwill

Considerations for the vendor

Choice and flexibility

  • An asset sale allows the vendor to be selective and choose assets they would like to sell.
  • The vendor can continue to run parts of the business where they still own some assets after the sale so long as the Asset Sale Agreement (which formalises the sale) does not limit the vendor from continuing to operate the business through a restraint of trade clause.
  • In the Asset Sale Agreement the vendor should specify any assets which are excluded from the sale, through clauses called exclusions, so that the purchaser is clear on which assets they are buying.
  • The vendor continues to own the entity that is selling the assets and with that any advantages attached to this entity.
  • There may also be some taxation advantages for the vendor in an asset sale.

Accurate representations of the state of the assets

  • The vendor will likely need to give warranties to the purchaser in the Asset Sale Agreement that the assets, such as equipment etc, are in proper working condition and comply with and meet statutory standards and requirements.
  • If the vendor gives warranties which are inaccurate they may be liable to compensate the purchaser for losses caused by the vendor’s misrepresentations, for example by repairing faulty machinery.

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Considerations for the purchaser

Choice and flexibility

  • Just as the vendor can select which assets to sell, the purchaser also has the freedom to choose which assets they wish to buy and to avoid buying superfluous assets.

Freedom from company liabilities

  • The purchaser cannot be held responsible for the liabilities of the vendor’s legal entity that is selling the assets.
  • These liabilities could be quite onerous as they may include law suits, debts and claims brought against the entity.

Some tax implications

  • By not buying the whole business, the purchaser may be liable for GST as the “going concern” exemption will not be available.
  • This is because the sale will not include all of the things that are necessary for the business to continue operating.
  • The Asset Sale Agreement should stipulate through tax clauses the various Federal and State taxes and fees that will most likely be payable, such as GST, stamp duty and transfer fees etc.
  • Care should be taken to properly assign individual costs to the assets bought as this may affect eligibility for various tax concessions and entitlements.

What is a sale of a business?

In contrast to a selective sale of assets, when the vendor sells their whole business they sell all of the assets needed to run and operate the business in a way that is identical to how it is currently run.

By buying all assets, the purchaser receives greater assurance that they have acquired all features and elements required to run the business.  Operating the business in an identical way to that of the vendor will most likely mean the purchaser is entitled to a GST exemption on account of the “going concern” concession.

What is a share sale?

In order to buy the vendor’s company as a whole including all the businesses that it runs and its underlying assets, a purchaser buys all the shares in the company. This is arranged through a Share Sale Agreement. The following features of a share sale should be considered by the vendor and the purchaser.

Clean break from the company

  • Through a share sale, the vendor can completely remove themselves from ownership of the assets and any liabilities of the business.
  • There may be capital gains tax advantages for the vendor through a share sale.

Potential for ongoing responsibilities to the purchaser

  • By buying the company, the purchaser takes on responsibility for all known and unknown company liabilities and debts.
  • Accordingly, the vendor may be asked to warrant that the company has accurately disclosed all company debts and obligations prior to the sale and that the company’s financial position is represented accurately in its accounts.
  • A vendor who gives warranties which are false or misleading may be in breach of warranty and need to compensate the purchaser for damage or loss they have incurred due to relying on incorrect information.
  • The vendor may also be required to indemnify the purchaser for loss or damage they experience in an agreed period following the sale (such as five or ten years) so as to protect the purchaser from unknown or unexpected claims against the company.

Smoother transition

  • A share sale arrangement is likely simpler than selling individual assets and the transition of the business to its new ownership can occur with minimal disruptions.
  • For example, the purchaser may not need to renegotiate existing service contracts.
  • The purchaser is also given greater assurance of the business’ employees continuing to work for the business.
  • Their employment contracts will remain unchanged in contrast to an asset sale where employees must be employed afresh by the purchaser.


It is important to remember that different financial implications and obligations and legal and commercial liabilities will arise for both the vendor and purchaser depending on whether you engage in an asset sale, sale of a business or share sale. If you need advice deciding which kind of sale is right for you, call Lord Commercial Lawyer’s business lawyers on (03) 9600 0162 or email us at info@lordlaw.com.au.

For further information please visit our pages on Commercial Leasing and Selling a Business.
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By Andrew Lord

Andrew heads Lord Commercial Lawyers as Director and has been in the Legal Industry for over 40 years.

Updated on May 16, 2024


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