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If you are considering selling your business, you need to decide whether you want to sell:

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

These are two different types of sales with different consequences. This article discusses how selling your shares differs from selling your business.

Key Considerations When Selling Shares

If you sell all the shares in your company, you are selling the company itself. A company is its own legal entity that can enter into contracts and own assets. Shareholders are the owners of a company. A sale of your company occurs when all the company’s shareholders sell their shares to someone else.

If you sell your company, this means that a new owner will take ownership of the company. They will take 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.

As a buyer, a share sale can be risky because the buyer is taking ownership of the company, including 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. To reduce the risk to the buyer, the buyer will want you to enter into a share sale agreement. This agreement will likely require the seller to provide warranties and representations concerning the shares. This way, the buyer can protect themselves from any unexpected losses they suffer due to taking ownership of the shares.

Key Considerations When Selling a Business

A business comprises of several 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 and leases.

If you sell 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 document the details of the assets being transferred in a business sale agreement. 

Selling your business means the business will be owned by a different legal entity, being the owner. That entity might be a company or an individual (or group of individuals). A business sale will require the new owner to take over the business contracts and the business’s employees. You will no longer have to perform any obligations on behalf of the business, including for the business’ staff.

Share Sales vs Business Sales

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

Subject
Selling Shares
Selling Business
Ownership of the Company
The ownership of the company has changed.
For example, if you currently own all the shares in ABC Ltd and sell those shares to a buyer, you will no longer own ABC Ltd. Instead, the buyer will.
The ownership of the company remains unchanged.
For example, if you currently own all the shares in ABC Ltd and sell its cafe business, the buyer will own the cafe business, but you will continue to own ABC Ltd.
Ownership of the Business and Assets
The ownership of the business remains unchanged.
For example, if Co Ltd owns a software business, even if the share ownership in Co Ltd changes, Co 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.
Liabilities
If 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, before a share sale, you should consider whether any contracts have ‘change of control’ clauses. This is 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.

The contracts related to the business will not need to be transferred because the ownership of the business remains unchanged.
However, before a share sale, you should consider whether any contracts have ‘change of control’ clauses. This is 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 business changing ownership, you will need to transfer any contracts related to the business to the new owner. This is because it is now the new owner who will have to perform the obligations under those contracts. You can typically complete this process through a novation of the contract from the old owner to the new owner.

Employees
The employer of the employees is unchanged (i.e. the same company owns the business). However, because new people control 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). You will need to transfer employees 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 different types of sales. 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 essential 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.

Frequently Asked Questions

What is a share sale?

A share sale is where the shareholders sell their shares, giving majority control to the new owner. If you sell your company, this means that a new owner will take ownership of the company. 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.

What is an asset sale?

An asset sale is where the company sells their assets such as client lists, trade marks and equipment to the new owner. If you sell a business, you are selling all, or most, of the assets which comprise the business.

When will I need a share sale agreement?

You will likely need a share sale agreement when conducting a share sale. In a share sale, the buyer is taking ownership of the company, including the company’s liabilities. To reduce the risk to the buyer, the buyer will wish to enter into a share sale agreement as it provides warranties and representations concerning the shares.

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