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When you are considering selling your business, a key starting point will be to decide whether you want to sell:

  • ownership of your company’s shares; or
  • just the assets of the business.

These are two distinct transactions with different consequences. This article discusses how selling your shares differs from selling your business.

Key Considerations When You Sell Shares

A company is its own legal entity which can enter into contracts and own assets. Shareholders are the owners of a company. A sale of a company’s shares occurs when a shareholder sells shares to someone else.

If you are considering selling your business, one way of doing so is by selling all of the company’s shares. This means that a new owner will take ownership of the company, taking control of the company’s assets and liabilities. Although the ownership of the company has changed, the ownership of the business has not. The business remains owned by the same legal entity, being the company.

A share sale can be risky because the buyer is taking ownership of the company, which includes the company’s liabilities. A potential buyer will want to conduct thorough due diligence to ensure it understands what assets and liabilities it is taking on. A buyer will also want to enter into a share sale agreement which requires the sellers to provide warranties and representations in relation to the shares. This way, the buyer can protect themselves from any unexpected losses they suffer as a result of taking ownership of the shares.

Key Considerations When You Sell a Business

A business is made up of a number of different assets, for example:

  • goodwill;
  • branding, intellectual property and business names;
  • phone numbers, social media pages and domain names;
  • trade secrets and operational processes;
  • plant and equipment;
  • stock; and
  • land.

When you are selling a business, you are selling all, or most, of the assets which comprise the business. The buyer will want to ensure that it is acquiring all of the assets it needs to achieve its commercial objectives. The buyer will conduct due diligence to verify this and will want the details of the assets being transferred documented in a business sale agreement. 

Selling your business means the business will be owned by a different legal entity, being the owner. A business sale will require the new owner to take over the business contracts and the employees of the business. You will no longer be performing obligations on behalf of the business or be the employer of the staff.

The Differences Between Share Sales and Business Sales

The table below outlines the key differences between selling shares and selling a business.

SubjectSelling SharesSelling Business
Ownership of the Company

The ownership of the company has changed. 

For example, if you currently own all the shares in ABC Pty Ltd and you sell those shares to a buyer, you will no longer own ABC Pty Ltd. Instead, the buyer will.

The ownership of the company remains unchanged. 

For example, if you currently own all the shares in ABC Pty Ltd and you sell its cafe business, the buyer will own the cafe business, but you will continue to own ABC Pty Ltd.

Ownership of the Business and Assets

The ownership of the business remains unchanged.

For example, if Co Pty Ltd owns a software business, even if the share ownership in Co Pty Ltd changes, Co Pty Ltd as its own legal entity will continue to own the software business.

The ownership of the business has changed. The business will now be owned and operated by a new company.
LiabilitiesIf you sell all the shares in your company, the buyer is taking ownership of the company. Therefore, they are taking control of the company’s assets and liabilities.

Typically, when you sell a business, the buyer will not take on the company’s liabilities which were in existence before the sale.

If the buyer does take on certain pre-existing liabilities, such as employee entitlements, they may negotiate a reduction in the purchase price to account for this.

Business Contracts

The contracts related to the business will not need to be transferred because the ownership of the business remains unchanged.

However, prior to a share sale, you should consider whether any contracts have ‘change of control’ clauses, where a sale of a substantial portion of the company’s shares requires another party’s consent or provides for a right for the parties to renegotiate or terminate the contract.

As a result of the ownership of the business changing, contracts related to the business will need to be transferred to the new owner. This is because it is now the new owner who will have to perform the obligations under those contracts. This is typically completed through a novation of the contract from the old owner to the new owner.
EmployeesThe employer of the employees is unchanged (i.e. the same company owns the business). However, because new people are in control of the company, they may choose whether to keep on all of the existing employees or change the workforce.The employer of the employees has changed (i.e. a new company owns the business). Employees will need to be transferred to the new owner. This can either be achieved by novating the existing employment contracts to the new owner or terminating the old contracts and entering into new contracts with the new owner.

Key Takeaways

Selling shares and selling a business are distinct transactions. The considerations you need to have in mind, and the consequences resulting from the transaction, will vary depending on whether you are:

  • selling shares; or 
  • selling a business.

The legal documents you will need, and the process involved will also vary. It is important to understand which transaction is more appropriate for your goals and the key considerations to keep in mind in either case. If you need assistance with a share sale or a business sale, contact LegalVision’s sale of business lawyers on 1300 544 755 or fill out the form on this page.

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