This method of purchasing a business depends heavily on the type of business, how it operates, and what is included in the company structure.
A share sale involves purchasing the shares in the company that owns the business and all its assets. This method is often preferred in small to medium businesses where there are key contracts or leases that may not be transferable to a new entity.
These contracts may include:
A share sale may also be advantageous where the company has a strong market reputation, historical performance, or valuable goodwill that would be affected by a structural change.
However, the buyer also inherits any past or undisclosed liabilities. It is essential to perform thorough due diligence with the help of a solicitor, accountant, and trusted advisors.
Share sales are generally not subject to GST or state sales tax, which can represent a significant saving. Nonetheless, professional quotes and fee estimates should be obtained early in the process.
Whether the transaction is an asset or share purchase, thorough due diligence is essential. Understanding the structure, risks, and obligations of the business being acquired will reduce risk and support a smoother transition.
The buyer’s intended structure for operating the business after purchase should be reviewed with legal and tax advisors to ensure asset protection and succession planning are in place.