There are two common ways to sell your business. It is essential to understand their differences because the process and associated risks involved vary. Thus, a basic understanding will allow you to highlight your business’s strengths and repair or minimise the risks. To list, you can either sell your business through a:
- business sale; where the business assets change ownership; or
- share sale; where the business is owned by a company and the ownership of the company’s shares changes.
However, there are advantages and disadvantages to both methods. Additionally, there may be circumstances where one is not possible (for example, because a business is owned by a sole trader or partnership and not a company). This article discusses the characteristics and differences between a share sale and a business sale and what you should know when undertaking either.
Business Sale
A business sale, or asset sale, refers to the sale of the business assets from the current owner to a buyer. The seller and buyer can be different entities (such as a sole trader, company or trust), but the distinctive feature of an asset sale is that the business assets change ownership. For instance, this can involve:
- all of the assets used in the operation of the business, referred to as a ‘business sale’; or
- only some assets, referred to as an ‘asset sale’.
Share Sale
A share sale involves the sale of the shares of the company that owns the business. Therefore, this means that the business assets do not change ownership, as they continue to be owned by the company. Instead, the ownership change occurs through the shares being sold from the current shareholder to the buyer, who will own the company’s shares after the sale has completed.

When you are ready to sell your business and begin the next chapter, it is important to understand the moving parts that will impact a successful sale.
This How to Sell Your Business Guide covers all the essential topics you need to know about selling your business.
What is the Business Sale Process?
Next, a business sale can be more complex from a process perspective as you need to transfer all of the business assets, including contracts, to the buyer. To explain, transferring contracts involves obtaining the consent of the other parties to the contract. This applies to leases, franchise agreements, employee agreements and client agreements. The type of business will determine the other steps and documents required, but the typical process is that the:
- seller’s solicitor prepares the draft business sale agreement (BSA);
- BSA is negotiated between the seller and buyer, with advice from their solicitors;
- BSA is signed, and the buyer pays a deposit, typically 10% (for signing or execution);
- conditions precedent are completed (these are the necessary steps between signing and completion); and
- purchase price is paid and business assets are formally transferred to the buyer, known as settlement.
Conditions Precedent
Conditions precedent are events that must occur before the sale can complete. These usually relate to the transfer of business contracts. This is because the business owner is changing, which means the parties listed in the various contracts will be different after the sale. If there are several key contracts used in the operation of the business, you must ensure these can be transferred.
Example of a Business Sale
What is the Share Sale Process?
In a share sale, the business assets (including business contracts) remain with the company. This means that no consent from third parties is necessary, resulting in a more straightforward process. Furthermore, this also means that all employees will continue to be engaged by the company. The exception is where there is a ‘change of control’ clause in the contract. This means that consent is required when the company shareholding changes. For example, this is common in government contracts, leases and franchise agreements. In this case, you will need to go through a similar process as under a business sale. The formal agreement is a share sale agreement, which sets out the:
- number of shares being purchased;
- price per share;
- warranties you are providing; and
- other obligations relating to before or after the sale has completed.
In addition, you will need to:
- execute a share transfer form to contractually transfer the share ownership;
- pass a shareholder and board resolution to allow the sale of shares and update the directors and secretary;
- update the company’s register of shareholders and issue share certificates to the new shareholder; and
- update ASIC as to the change of shareholders and directors within 28 days.
Example of a Share Sale
Business Sales vs Share Sale
The following table outlines four key differences between a business sale and a share sale:
|
Business Sale |
Share Sale
|
Company Ownership |
Company ownership remains unchanged. The ownership remains with the existing shareholders. |
Ownership of the company has transferred to its new shareholders. |
Asset Ownership and contracts |
The assets and contracts of the business need to be transferred to the buyer. |
The assets and contracts remain in the name of the company and do not need to be transferred. |
Liabilities |
Generally, the only liabilities that pass to the buyer are those attached to the specific assets that were sold. |
All assets and liabilities which are in the name of the company remain with the company (meaning the buyer who now controls the company is responsible for those assets and liabilities). |
Employees |
As the employer has changed, existing employment contracts will need to either be: a) transferred (through ‘novation’); or b) terminated and drafted afresh by the new owner. |
The employer of the existing employees has not changed. Therefore, existing employees remain employed. However, the new owners can choose whether to keep the existing employees or not. |
Key Takeaways
You must discuss the type of sale you wish to complete in detail. You should consider the contracts you use in the operation of your business. If there are many contracts to transfer and you own the business through a company, a share sale may result in a smoother process. Furthermore, you should also examine all contracts for ‘change of control’ clauses as consent may still be required in a share sale.
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Frequently Asked Questions
The answer depends on whether the company’s shareholders agreement contains drag-along rights. Drag-along clauses allow a majority of shareholders to force a minority of shareholders to sell their shares when selling the company to a third party. Usually, the shareholder’s agreement will specify the majority required to invoke the drag-along right (a majority threshold is typically between 51% and 90%).
Again, this depends on whether your shareholder’s agreement contains tag-along rights. Suppose a minority shareholder has not been offered to join the share sale or is not provided notice. In that case, tag-along rights allow them to tag along with the majority shareholders and sell their shares on the same terms to the same purchaser.
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