Why most sales are asset sales.
Most business sales are asset sales. The buyer takes the goodwill, plant, stock and other assets and leaves the selling entity, and its past, behind. That is why buyers tend to prefer it. When the company is sold instead, the buyer steps into everything the company has ever done, and will look closely at whether it carries outstanding tax, penalties, fines, litigation or other liabilities, because those come across with the shares whether or not anyone knew about them.
When a share sale makes sense.
A share sale can still be the right structure, and for a seller it is sometimes far better after tax, because the gain is made on the shares rather than trapped inside the company. The trade-off is that it asks the buyer to run due diligence on the company as well as the business, and to rely on the seller's indemnities for anything that predates the transfer. Most buyers will not take on a company's history unless their investigation satisfies them, which is why the asset sale remains the default. Where a share sale is the path, the parties sign a share sale agreement rather than a sale of business agreement, and the seller is generally expected to indemnify the buyer against pre-transfer debts, tax, claims and compliance failures. Our business sale and purchase service and our shareholder agreement work cover both routes.
Why the choice is worth getting right early.
The choice drives the tax, the risk and the depth of investigation, and the best answer is often specific to how the business is owned, so it is worth settling with your lawyer and accountant before the deal takes shape rather than after.
A share sale looks tidy because only shares change hands, but the buyer inherits every liability the company carries, including ones not yet visible. That is why a seller who prefers a share sale usually has to accept a lower price or give wider indemnities.
Law referenced: Income Tax Assessment Act 1997.