In Short:
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A business purchase involves buying assets like equipment, contracts, and intellectual property, while a company purchase involves acquiring the company’s shares.
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Purchasing assets can help avoid inheriting liabilities, but requires clear agreements and potentially applying for new licenses.
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Buying a company allows for continuity of operations, but comes with inherited liabilities.
Tips for Businesses:
When considering a purchase, ensure you thoroughly review the assets involved and the associated liabilities. If buying assets, clarify exactly what is included in the sale and be aware of licensing requirements. A company purchase offers continuity but may bring over past financial or legal issues. Always seek professional advice.
In Australia, there are several different types of business structures to operate a business. The most common include a sole trader, company, trust and partnership. An individual (sole trader) and a company are legal entities as they can own assets, be sued and enter into contracts with other legal entities. A partnership consisting of individuals and/or companies can enter into contracts and purchase assets on behalf of the partnership. Similarly, the trustee of a trust can be an individual or company (or multiple individuals or companies) and legally hold business assets and contracts on behalf of the trust. Given these different business structures, it can be confusing when discussing buying a business versus a company, as many people use the terms interchangeably. In this article, we will explain the key differences.
What is a Business?
A business is a trading activity owned and operated by one or more legal entities to generate a profit. These trading activities are typically confined to one type, such as a restaurant. Where you are carrying on a business to gain an income, you must register for an Australian Business Number (ABN). Obtaining an ABN will help to identify that business operation. You can register for an ABN through the Australian Business Register (ABR). The ABR is part of the Australian Taxation Office. Once you have an ABN, you can register your business name.
You must register a business name where you are carrying on a business using a different name. For example, if the business name is not the same as your personal name (where you are a sole trader) or if your business name is not the same as your company name.
What is a Company?
In Australia, a company is a legal entity that is owned by shareholders and managed and operated by directors and company secretaries. Most companies in Australia are proprietary limited companies, meaning they are private and not publicly traded. Proprietary limited companies have certain requirements and restrictions. The main requirements are that there must be at least one director that ordinarily resides in Australia, and there can only be up to 50 shareholders. For this article, the type of company that we will refer to is a proprietary limited company.
Continue reading this article below the formBuying Business Assets
When purchasing a business by way of an asset sale, this means you are purchasing the assets used to operate the business, including:
- equipment;
- contracts;
- lease; and
- intellectual property, among others.
As a new legal entity is purchasing the business assets, there is a transfer of ownership of the business. If the business is operated by a partnership or on behalf of a trust, you will need to undertake a business (or asset) sale as opposed to a share sale.
You may be looking to purchase a business as a going concern. This means you are buying all of the assets necessary for the continued operation of that specific business. Generally, you do not need to pay GST on the purchase price if the sale of the business is the sale of a going concern. It is also possible to purchase specific assets that the business uses. For example, you may be looking to buy only the equipment and arrangements with suppliers but not the business name and other components. In this instance, you must pay GST on the purchase price. However, you can typically claim this back as a tax credit.
Benefits of Buying the Assets
In a business asset purchase, you can take over all of the business’s assets or select which assets you want. This will have GST implications. However, it means you do not have to take on assets you do not require, reducing the amount you need to pay the seller.
When purchasing the assets of a business, you do not take on ownership of the company that operated that business. This means that, generally, you do not inherit the business’s past trading history and liabilities.
This is the single biggest benefit over purchasing a company via a share purchase. For example, if the company has an outstanding tax bill to the ATO, you will not take over responsibility for paying that tax bill. That liability stays with the company and continues to be the company’s responsibility.

Know which key terms to negotiate when buying a business to protect your interests and gain a favourable outcome.
Risks of Buying the Assets
While it is beneficial not to take on pre-existing liabilities, there are risks to consider when buying business assets. If you are purchasing all assets used to operate the business, the sale agreement must be very clear on exactly which assets will be transferred to you. If anything is missing or not included in the agreement, it may be excluded from the sale.
It can be difficult to obtain the licence needed in specific industries that require a licence or government approvals to operate a business (such as childcare and registered training organisations). In a business asset purchase, you would need to either apply for a new license or apply to have the seller’s license transferred to you (if it can be transferred at all). This may be a more difficult and time-consuming process than if you were purchasing the company, as the license would be held by the company itself, so it does not need to be transferred.
Buying a Company
When buying a company, you are purchasing the shares in that company from the shareholder that currently owns them. During this process, the previous shareholder transfers the legal ownership of the shares to you.
Benefits of Buying a Company
As you are taking over ownership of the company that owns all the assets that make up the business, there is no need to transfer any of those assets. This is generally a more streamlined and simpler completion process than an asset sale transaction.
For example, there is no need to transfer employees as their employment with the company continues. If some employees are crucial to the business’ success, carrying out a share sale can better secure the continuation of their employment. While all the business contracts will remain with the same legal entity, you may still require the consent of the other contracting party to continue that contract. This is common in leases and equipment finance arrangements.
Risks of Buying a Company
When taking over ownership of shares in a company, you take on past risks from trading and any existing liabilities of the company. This can include:
- outstanding tax;
- bank loans;
- leases; and
- customer contracts.
Therefore, in a share sale, it is essential to do thorough due diligence on the company. You want to uncover as many of these liabilities as you can. Likewise, engage a lawyer experienced in M&A transactions to help you with the share sale agreement.
The share sale agreement will set out specific promises the seller makes about the business and company and its past activity. These are called warranties. If any of the seller’s warranties are untrue at the date of completion, and you suffer a loss, you can typically bring a claim against the seller to recover this loss. Share sale agreements are technical, legal documents. Therefore, you may require the expertise of experienced lawyers to reduce your risks in undertaking this type of transaction.
Key Takeaways
Businesses are commercial trading activities designed to generate income and are owned by a legal entity. You can own and operate a business through different business structures such as sole trader, company, trust and partnership. There are several considerations when buying the assets of an established business or taking over ownership of the shares in a company.
For a buyer, the single biggest risk in buying a company is that you take on the past trading history and liabilities of the company when you assume ownership of the shares. However, ease of taking ownership and industry requirements may make this the preferred transaction structure. M&A transactions are technically complex, so it is essential to understand any risks before entering into any business sale transaction.
If you require assistance with the sale or purchase of a business (whether via an asset sale or share sale), our experienced mergers and acquisitions lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Buying an existing business involves buying assets used to operate the business, such as equipment, leases, and contracts. You can choose to buy specific business assets or purchase all assets that comprise the business.
When undertaking a share sale, you are purchasing the shares in that company from the shareholder that currently owns them. During this process, the previous shareholder transfers the legal ownership of the shares to you.
A scrip for scrip deal, also known as a scrip-for-scrip exchange or a share-for-share exchange, is a type of transaction commonly used in mergers and acquisitions in Australia and other countries. In this type of deal, the acquiring company offers its own shares (scrip) as consideration to the shareholders of the target company, instead of cash.
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