Two ways to buy a business

Buying an existing business can help you avoid the hard work and intense stress needed to establish one. There are two ways to buy a business: 

1. Purchasing the business as an asset (asset purchase) 

An asset purchase includes buying some or all of the business’ assets. This can include fixed assets like land, buildings, machinery, trading stock and intangible assets like goodwill and intellectual property. These are identified in the sale and purchase agreement. 

Liabilities accrued can also include employee’s annual and long service leave and can be deducted from the asset price or paid out for tax purposes. 

2. Purchasing all of the shares in the company that owns the business (share purchase) 

When a buyer acquires 100% of the shares in a business, they take control of the business and all assets and liabilities. A share purchase can be trickier because of the potential liabilities that are not always apparent on the balance sheet.  The share value may be determined on the basis of the expected future earnings of the business and not take into account the true market value of the assets and liabilities.  

From 1 July 2016 stamp duty is not payable on the transfer of shares in New South Wales (except in certain circumstances) which may make a share purchase a slightly more attractive option than an asset purchase, but any ongoing contracts with the company remain in force.  

If you have further questions, please contact us at frank@franklaw.com.au

This is not legal advice. 

Written by Tim Cargill & Zdenka Marinov and edited by Andrew Graham.