The Acquisition of Assets and Shares – Structure, Tax, Duty and Other Implications and Considerations

The purpose of this article is to help investors make a decision as to the structure of a proposed asset/share transaction, and specifically covers the top commercial, asset protection and tax minimisation considerations for these types of acquisitions.

Asset vs Share Sale

In any acquisition involving a vendor company, a prospective purchaser will need to consider whether to acquire the equity in the vendor company (Share Purchase) or the assets (i.e. the business or the tangible assets themselves) of the vendor company (Asset Purchase).

The type of asset being purchased can have a significant impact on the purchaser’s decision. For example, an Asset Purchase is more common where the asset is real property, whereas a Share Purchase is more common when the asset is a business.

Before making the final decision on an Asset vs Share Purchase, a purchaser should undertake legal and financial due diligence, and specifically determine the:

  1. tax benefits and consequences of either transaction,
  2. ideal purchasing structure, and
  3. risk of pre-completion liabilities of the vendor company and whether these can be adequately managed via provision of contractual vendor warranties and/or security in the form of personal guarantees provided by the directors/related persons of the vendor company.

Asset Purchase

A purchaser may prefer an Asset Purchase because, unless it is otherwise agreed, the purchaser will not be responsible for pre-completion liabilities of the vendor company, which can be unknown at the time of sale. This is the primary benefit of an Asset Purchase.

The primary disadvantage of an Asset Purchase is that the transaction can be a much more complicated, costly and lengthy, particularly in a business acquisition that requires the assignment/novation/transfer of all assets and contracts of the vendor company. This becomes more complex when key contracts may not be capable of assignment due to non-agreement by the third party to the contract.

Share Purchase

A purchaser may prefer a Share Purchase in circumstances where there are tax benefits, core agreements are unable to be assigned/novated to a new entity or commercial reasons, such as ease of the transaction or not wanting to advise third parties of a change of ownership (unless contractually bound to do so).

The primary benefit of a Share Purchase is that the transaction itself is generally fairly straight forward, as there is no need to assign/novate assets or contracts of the vendor company, or transfer employees in a business acquisition (subject to any third party consent that is required under a third party contract, such as a Lease). You are simply purchasing shares.

The primary, and significant, disadvantage is that in a Share Purchase a purchaser will not only acquire all assets, but will also acquire all pre-completion liabilities. While due diligence can identify some of these potential liabilities, and the Sale Agreement can assist in reducing the risk with vendor warranties and security:

  1. the purchaser would still need to enforce any warranties under the Sale Agreement if same are breached and be successful in said claim and recovery (subject to negotiation of set-off provisions and incorporation of breaches into value-creating milestones/earn-outs in the Sale Agreement), and
  2. liabilities that were not considered, and therefore not covered in the warranties, may arise in the future.

Tax and Duty Implications and Considerations

While we recommend that you obtain specific taxation advice from an Accountant, we provide a general summary of potential tax and duty implications of a Share Purchase vs Asset Purchase below.

Share Purchase

  • Vendor Company’s Tax Liabilities and Attributes (franking credits, tax losses etc) – generally the tax liabilities and attributes remain with the company and are therefore acquired by the purchaser.
  • Apportionment of Price Between Assets – generally there is no purchase price allocation to assets necessary;
  • Capital Gains Tax (CGT) – should only apply to the vendor shareholder (subject to availability of CGT concessions/rollover relief, including scip for scip), but a purchaser shareholder should seek tax advice regarding its purchasing structure as to potential future capital gains tax it may be subject to and determine the most tax effective structure to purchase the shares through to minimise any future CGT and other taxes;
  • Goods and Services Tax (GST) – should not apply as the sale of shares is exempt from GST;
  • Stamp Duty in NSW – is not applicable to the transfer of shares in a private company, however, landholder duty can arise where the company holds real property interests above a particular threshold (read more here); and
  • If a FIRB application is required, and approved, then certain tax conditions may be imposed.

Asset Purchase

  • Vendor Company’s Tax Liabilities and Attributes (franking credits, tax losses etc) – tax liabilities and attributes remain with the vendor;
  • Apportionment of Price Between Assets – is necessary, particularly in a business acquisition, as it determines the tax basis for each asset and the extent of any duty or tax payable (read more here);
  • Capital Gains Tax (CGT) – should only apply to the vendor (subject to availability of CGT concessions/rollover relief);
  • Goods and Services Tax (GST) – an asset purchase is generally subject to GST unless an exemption applies, such as the assets are acquired as the acquisition of a “going concern” (read more here). A GST credit to recover GST included in the purchase price may be available to the purchaser, but any stamp duty liability would generally be payable on the GST-inclusive amount. While the sale of real property must be made in the course or furtherance of an enterprise before it is brought into the GST system, a single activity of developing and selling a property could be sufficient for the ATO to require a person to be registered for GST, as they may be considered to be carrying on an enterprise for GST purposes, and the transaction may then attract GST;
  • Stamp Duty in NSW – typically a higher stamp duty cost arises for an Asset Purchase as duty can apply not only to real property assets, but also other assets, including goodwill, IP, debts; and
  • If a Foreign Investment Review Board (FIRB) application is required, and approved, then certain tax conditions may be imposed.

Other Considerations for Acquisitions in General

Foreign Investment Review Board

Regardless of the transaction type (Asset or Share Purchase), acquisitions over a particular threshold, which involve a foreign investor, require approval from Australia’s Foreign Investment Review Board (FIRB).

An investor’s application to FIRB must include information about the investor, the investor’s associated entities and the target. In addition, the application must outline details of the transaction, including the entities involved, the nature and extent of acquisition funding and details of the proposed capital structure of the target.

Encumbrance of Assets

To ensure that all assets involved in a sale are unencumbered upon completion, the following ought to take place:

  • Conduct searches on the PPSR and ASIC register of changes, now and at the time of completion, and make sure all registrations are discharged prior to completion (unless agreed otherwise);
  • Conduct comprehensive Due Diligence on all security agreements, loan agreements, and contracts related to the assets, including sale of goods contracts, to determine if any encumbrances exist particularly if not registered on the PPSR and determine whether there is any risk of such security interests being enforceable;
  • Conduct Due Diligence on employment and third party service contracts to determine the ownership of any IP, and undertake searches of IP Australia and other web searches for relevant business names;
  • Link the payment terms to the removal of any encumbrances; and
  • Draft appropriate vendor warranties into the sales contract regarding the assets being unencumbered prior to completion.

Vendor Warranties

Vendor warranties are representations and promises made by the vendor to the purchaser regarding the company and the shares/assets being sold, which the purchaser can rely upon after exchange and following completion of the transaction. A breach of a vendor warranty can provide a claim in damages in favour of the purchaser, or a right to termination of the sales contract, depending upon the contractual terms. Vendor warranties are very important and relevant in a Share Purchase, in particular, as the purchaser is taking over the company’s pre-completion liabilities.

Typical warranties that a purchaser would seek in a Share Purchase include:

  • the Vendor’s power and authority to enter into the transaction documents and sell the shares,
  • the shares are validly issued,
  • the shares are free from liens, encumbrances or claims,
  • the books and records of the company are true and correct and not misleading,
  • financial statements and accounting records have been prepared in accordance with relevant laws and applicable accounting standards,
  • the company is solvent, with no threatened insolvency action,
  • the Company has not traded whilst insolvent or been involved in any uncommercial transactions,
  • the Company has all required permits, licences and registrations to carry on its business,
  • the Company has complied with all ASIC requirements,
  • the Company has standard and required insurances in place for the past 6 years and there is no actual or anticipated claims,
  • there are no disputes or claims with respect to any leased premises or outstanding amounts owing by the Company,
  • there are no claims or litigation current or anticipated against the Company,
  • the Company has complied with all relevant laws,
  • the Company has complied with all employment related regulations and laws, including payment of superannuation, and there are no current or anticipated claims against the Company,
  • there are no unresolved tax disputes or amounts owing to the ATO and all returns and BAS are update to date,
  • all tax and other financial records have been maintained by the Company to date as required by law or industry standard,
  • the Vendor has not withheld any information from the Purchase and all material information regarding the Company and the shares has been disclosed, and
  • all information disclosed by the Vendor to the Purchase is true and correct and will remain so until Completion.

The duration and scope of the vendor warranties may vary depending upon negotiations between the parties.


Where a vendor and a purchaser cannot agree on the value of a particular asset, or the value agreed is dependent upon a certain status quo remaining (such as retention of clients/fees post completion) they can consider including an earnout as part of the transaction. Typically, an earnout involves the payment of deferred consideration (price), which is contingent on the future economic performance of an asset (such as profit). If deferred consideration is negotiated, it is important to have a clear and detailed formula documented in the Sale Agreement to calculate whether, when and how much deferred consideration will ultimately be paid to the vendor.

Typically, the deferred consideration, or earnout amount, should not be subject to tax unless and until the amounts are actually received.

If you are considering the acquisition of an asset or business, it is best to discuss your options to structure the transaction and purchasing entity early with your Accountant and Lawyer so that the correct documents can be prepared and issues raised in the negotiation process. Contact one of our Business Lawyers today to discuss your proposed transaction.

Corporate and Commercial Lawyers for Sydney and Newcastle

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The information in this article is not legal advice and is intended to provide commentary and general information only. It should not be relied upon or used as a definitive or complete statement of the relevant law. You should obtain formal legal advice specific to your particular circumstance. Liability limited by a scheme approved under Professional Standards Legislation.

Solicitor Director
Accredited Specialist (Business Law)