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October 2012

Buying a Business
Asset or Share Purchase?
When purchasing a business, What is An Asset Purchase? What to Consider With An
there are generally two methods An asset purchase involves the purchase Asset Sale
available, an asset purchase of some or all of the assets owned by Employees: an employees current
an entity and used in carrying on the employment contract will usually be
or a share purchase. In this
business of that entity. Assets may with the seller or entities controlled by
article we will look at whether include fixed assets, land, buildings, the seller. When buying the assets,
it matters which vehicle a seller machinery, trading stock and intangible the employment relationship cannot
or purchaser chooses when assets such as goodwill and intellectual be transferred from the seller
property. Usually, the assets are to the purchaser as employment
buying or selling a business by specifically identified in the sale and contracts are personal in nature.
identifying the advantages and purchase agreement. Sometimes In this circumstance, it will be
disadvantages of each. employee liabilities such as accrued necessary for the seller to terminate
annual and long service leave are the employment contract with the
deducted from the asset price or paid employee and for the purchaser to
out for tax reasons. enter into a new employment contract
with each employee. The seller will
What is a Share Purchase? need to consider the treatment of
A share purchase is slightly more the accrued entitlements, which can
complex than a purchase of business vary depending on the terms and
assets, because with the shares comes conditions of employment of each
a range of potential liabilities, many employee. Similarly, any employee
of which may not be identified on the benefit plans may also have to
balance sheet of the entity. Share sales be acquired or assumed and that
may involve the sale of the shares in can be particularly costly in some
a trading entity, related entities and situations.
occasionally units of a unit trust. In No Assignment: key contracts
some instances the share value may be may need third party consent to be
determined on the basis of the expected assigned, or may not be assignable
future earnings of the business and may at all, thereby reducing the value
not take into account the underlying of the business to the purchaser.
market value of the assets or liabilities Specific arrangements may be
being acquired. Where a purchaser required to vest title in the purchaser.
acquires 100% of the shares in an entity, For example, the consent of landlords
the purchaser takes control of the entity or finance companies may be
and all of the assets and liabilities. required for transfer of any property
or plant & equipment leases where
these are subject to mortgages or live
purchase agreements.


Buying a Business Asset or Share Purchase?

Ability to cherry pick: an asset What to Consider With a Stamp duty: may make it more
sale provides the purchaser with the Share Sale attractive to acquire the shares than
ability to choose which assets to the assets. In New South Wales, the
Continuity of business name: the
acquire and to leave any unwanted current stamp duty rate is:
business is carried on by the same
assets with the seller.
entity with the purchaser stepping 60 cents for every $100 or part
Apportionment: the purchase into the shoes of the seller thereby thereof of dutiable value for
price must be apportioned between reducing the need for costly and time shares; versus
various classes of assets, including consuming administration matters. In an increasing rate based on the
plant and equipment, land and some instances, customers may not dutiable value of assets starting
buildings, stock, and goodwill if even realise there has been a change from $1.25 for every $100 of
applicable. This can cause a conflict of ownership. dutiable value or part thereof.
between a sellers preference
Employees: usually remain with This increases from this rate
to adopt their book value and a
the entity and purchaser. Apart depending on the dutiable value
purchasers preference to adopt
from possible provisions in the sale of the assets.
a higher value to maximise tax
and purchase agreement that may Care needs to be exercised with
benefits. The purchase price can,
provide for redundancy of specific land rich companies where the
within relevant parameters, be
staff or specific benefits to be paid entity has land holdings with an
apportioned between assets sold
upon change of control of the unencumbered value of $2 million or
which may result in tax advantages
business, the legal identity of the more and its land holdings comprise
for the seller.
employer remains the same. 60% or more of the unencumbered
Tax consequences: for a
Assignment: prohibitions against value of all of its property as stamp
purchaser, the cost of assets can
assignment may not arise as the duty will be levied on the shares at
be reset to their market value at
contracting party remains the the much higher conveyancing rates.
the time of purchase which in most
same. This means that it may be Warranties: the purchaser will
instances will reduce the capital
easier to sell the shares than re- need to ensure they obtain relevant
gains tax that might otherwise
assign or novate a large numbers warranties from the purchaser
arise at a future date and result in
of contracts or licences. It is still to ensure they are not left with
a benefit to the purchaser. A seller
important to review the terms of unresolved liabilities such as unpaid
might gain a benefit by utilising tax
these agreements as often they fringe benefit tax or payroll tax.
losses to offset other tax liabilities
have Change of Control clauses
arising from the sale. Property leases: review property
which may have implications for the
Goods and Services Tax (GST): new purchaser. leases in the entity name including
where all of the assets of a business make good provisions.
Tax consequences: there may
are transferred the sale may be Regardless of whether the transaction
be franking credits, tax losses or
classified as the sale of a going is structured as an asset purchase
undisclosed tax liabilities. Potential
concern. This may result in no GST or a share purchase it is essential
tax benefits may arise for the
being payable on the transaction. to ensure that both a seller and a
seller including small business tax
Alternatively, where the sale cannot purchaser have undertaken sufficient
concessions. There may be more
be categorised as a going concern, due diligence to ensure there are
flexibility to structure the transaction
a GST liability may arise. no unpleasant surprises following
to optimise the after-tax outcome
Duties: stamp duty or land tax may for the seller. Remember that the the sale/purchase. Furthermore,
be payable on the transfer of land purchaser of shares inherits all the the purchasers preferred vehicle for
and other real property, depending skeletons in the cupboard of the carrying on the future business will
upon the state in which the assets entity acquired and warranties in require specific tax and related asset
are located. Stamp duty is generally the agreement may be of little future protection/succession advice.
higher on transfer of assets than value if the seller has dissipated the
shares as discussed above. funds received.
Unrecorded liabilities: including tax
liabilities or warranties the purchaser
may not know of. It is important to
ensure tax, legal and accounting due
diligence is undertaken in an effort to
identify these liabilities.


Buying a Business Asset or Share Purchase?

For Further Information Crowe Horwath in Australia

Please contact your local advisor: Crowe Horwath works with companies and individuals to maximise their growth
potential and achieve financial goals. The firms team of more than 800 Principals
Lauren Cusack
and professionals delivers a full range of accounting including, audit and taxation,
Principal, Corporate Finance
business advisory, corporate finance and wealth management services nationally from
Tel +61 2 9619 1895 offices in Brisbane, Melbourne, Perth and Sydney. Crowe Horwath is an integral part
lauren.cusack@crowehorwath.com.au of the ASX-listed WHK Group Australias fifth largest accounting services group
Bill Jansen and a member of the global Crowe Horwath International network. Crowe Horwath
Consultant, Corporate Finance International is ranked among the worlds top-ten accounting networks and comprises
more than 140 independent accounting and advisory services firms in more than 100
Tel +61 2 9619 1867
countries. See www.crowehorwath.com.au.
Deanna Chiang
Senior Manager, Corporate Finance
Tel +61 2 9619 1962
Courtney Barros
Analyst, Corporate Finance
Phone: +61 2 9619 1613

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