The short answer
In an asset sale you buy selected assets of the business — goodwill, equipment, stock, the name — and generally leave the seller's debts and history behind. In a share sale you buy the company that owns the business, so its debts, tax record, contracts and employees all come with it. Buyers usually prefer assets for a clean start; sellers often prefer shares for simplicity and tax. Lenders can fund either, but assess them differently.
Key points
- Asset sale: you pick what you buy and generally leave the seller's liabilities behind.
- Share sale: the company changes hands with everything inside it — good and bad.
- A sale of a going concern can be GST-free if the ATO's written-agreement and registration conditions are met.
- Lenders look at the entity that will own the business, its security and, in a share sale, its history.
- Check change-of-control clauses in leases, finance contracts and key customer agreements early.
Short answer: in an asset sale you buy the things that make the business work — goodwill, equipment, stock, the trading name, often the phone number and website — and the seller keeps their company, its debts and its history. In a share sale you buy the company itself, so everything inside it transfers to you: bank accounts, contracts, staff, tax record and any liabilities, known or not. Neither is automatically better. The right structure depends on what the business holds, what can be transferred and how the purchase will be financed.
If you’re buying a business that trades through a company, this is usually the first structural question your lawyer asks. This entry sets out what each option means for you as the buyer, then how lenders look at each one.
What exactly are you buying in each case?
Think of the company as a box. An asset sale lifts selected items out of the box and puts them into a box you own. A share sale hands you the whole box, lid and all.
| Asset sale | Share sale | |
|---|---|---|
| What changes hands | Named assets: goodwill, plant and equipment, stock, IP, business name, sometimes the lease | All the shares in the company that runs the business |
| Who owns the business afterwards | Your entity (new company, trust or you personally) | The same company, now owned by you |
| Seller’s debts and liabilities | Generally stay with the seller | Stay inside the company — now yours |
| Contracts, leases, licences | Must be assigned or re-issued to you | Usually stay in place, subject to change-of-control clauses |
| Employees | Offered new employment; Fair Work transfer rules apply | Stay employed by the same company |
| ABN, GST registration | You use your own | The company keeps its ABN and registrations |
| Tax history | Stays with the seller | Comes with the company |
| Typical preference | Buyers | Sellers |
Terms used in this entry: goodwill, due diligence, stamp duty, general security agreement, vendor finance.
Why do buyers usually prefer an asset sale?
The main attraction is a clean start. Because you’re choosing specific assets, you can leave behind anything you don’t want — an unpaid supplier, an old dispute, an ATO debt sitting in the seller’s company. A few practical advantages follow:
- You set the starting values. The purchase price is allocated across goodwill, equipment and stock in the contract, which affects your future depreciation and tax position. Talk to your accountant before the allocation is locked in.
- Clearer security. A PPSR search on the seller shows whether any lender holds security over the equipment or stock you’re buying. Those interests should be released at settlement so you take the assets free of other claims.
- Fresh structure. You can buy through whichever entity suits your plans and borrowing — a new company, a trust or a partnership.
The cost of that cleanliness is paperwork. Every lease, supplier account, licence, software subscription and customer contract has to be transferred, assigned or re-signed. Landlords may want a new lease or a fresh bank guarantee. Some licences and government approvals can’t be transferred at all and have to be applied for again.
Why might a share sale make more sense?
A share sale earns its place when the company holds things that are hard to move:
- a long lease on favourable terms that the landlord won’t assign;
- licences, accreditations or permits issued to the company;
- government or corporate contracts, panel appointments or tenders won in the company’s name;
- a trading history that customers, suppliers or franchisors rely on.
It’s also often the seller’s preferred route. They walk away from the whole company in one step, and depending on their circumstances the tax outcome of selling shares can be better for them. The ATO’s small business CGT concessions, for example, have eligibility tests that include aggregated turnover under $2 million or a maximum net asset value of $6 million, with extra conditions when the asset sold is a share (ATO). That’s the seller’s issue rather than yours — but it explains why a vendor may push hard for shares and sometimes accept a lower price to get them.
The trade-off for you is inheritance. Whatever the company did before you arrived is still the company’s responsibility: lodgement gaps, underpaid super, unpaid wages, a warranty claim from three years ago. That’s why share purchases lean so heavily on due diligence and on warranties and indemnities in the sale contract, and why a portion of the price is sometimes held back for a period after settlement.
How do GST, staff and stamp duty differ?
GST. In an asset sale, the sale can be GST-free as a supply of a going concern if the conditions are met. The ATO lists them: the sale is for payment, the buyer is registered or required to be registered for GST, and both parties have agreed in writing that it’s a going concern — with the seller supplying everything needed for the business to keep operating and continuing to run it until the day of the sale (ATO). If the conditions aren’t met, GST can be added to the price, which matters for how much cash or finance you need on settlement day. A share sale is a sale of shares, so the going concern question doesn’t come up in the same way.
Employees. In a share sale the employer is still the same company, so nothing changes legally for the staff. In an asset sale, the Fair Work Ombudsman’s transfer of business rules apply where an employee starts with the new owner within 3 months, doing the same or nearly the same work, and there’s a connection between the old and new employers. A new employer has to recognise prior service for entitlements such as sick and carer’s leave, but may be able to choose not to recognise it for things like annual leave and redundancy if the two employers aren’t associated — in which case the seller pays those out (Fair Work Ombudsman). Which way that goes is a negotiation point, and it changes the cash both sides need.
Duty. Stamp duty treatment varies by state and by what’s actually being transferred — land, goodwill, other business assets, or shares in a company that holds land. Get advice for your state before you budget, because duty is normally paid by the buyer and can’t be borrowed after the fact.
ASIC. In a share sale, the transfer has to be notified to ASIC within 28 days (ASIC). New directors will also need a director ID before they’re appointed.
How do lenders look at each structure?
Lenders can fund either kind of purchase, but the questions shift. If you’re mapping out the funding side now, you can check what your purchase might qualify for before you commit to a structure.
In an asset sale, the lender assesses your buying entity: your contribution, the target’s trading figures, and the security on offer. Because the assets are passing to a new owner free of the seller’s debts, the lender can usually take a clean general security agreement over the new entity’s assets. Identifiable equipment such as vehicles, coffee machines or a CNC router can often be funded separately through equipment finance, which takes pressure off the main loan.
In a share sale, the lender has to get comfortable with the company you’re buying as well as with you. Expect requests for:
- recent financial statements and BAS for the company, plus its ATO integrated client account or statement of account;
- a list of the company’s existing loans, leases and security registrations;
- confirmation that existing facilities will be paid out or that their lenders consent to the change of ownership;
- personal guarantees from incoming directors, and often security over property.
Goodwill rarely gives a lender much comfort on its own, whichever structure you use. That’s why many purchases combine the buyer’s own contribution with a property-secured business loan against a home or commercial property, sometimes topped up with vendor finance. Our encyclopedia entry on business acquisition loans covers the funding mix in more detail.
The clause that quietly ends deals: change of control
In a share sale, the company’s contracts stay in place — but many of them contain a change-of-control clause. Leases, equipment finance agreements, franchise agreements, supply contracts and bank facilities often say that a change in who owns the company needs the other party’s consent, or gives them the right to end the agreement or call up the debt.
Miss one of these and settlement day can turn up a landlord who wants a new guarantee, a financier demanding a payout, or a key customer with the right to walk. Ask for every material contract early in due diligence and have your lawyer list the consents needed. In an asset sale the same issue appears as an assignment problem: the contract either transfers with consent or it doesn’t transfer at all.
Worked example (illustrative)
Illustrative only — not a real client. Priya is buying an established commercial cleaning company in Adelaide that holds three multi-year contracts with property managers. The vendor’s company also has an old dispute with a former subcontractor.
- Asset sale route: a cleaner start — the dispute stays with the vendor. But the three contracts are in the company’s name and need each property manager’s consent to assign. One manager says they’ll re-tender instead.
- Share sale route: the contracts stay put, but Priya inherits the subcontractor dispute and any other history in the company.
Her lawyer negotiates a share sale with specific indemnities for the dispute and a retention amount held back from the price for twelve months. Her accountant reviews the company’s ATO account and super payments. On the funding side, the lender asks for the company’s last two years of financials and its ATO statement, takes a second mortgage over Priya’s home and a general security agreement over the company, and requires the company’s existing vehicle finance to be paid out at settlement. Choosing the structure first made the finance application straightforward, because the lender knew exactly which entity it was lending to and what it would hold as security.
Which structure fits your purchase?
A rough guide, before you speak to your advisers:
| If the business… | Lean towards |
|---|---|
| has a messy history, unknown liabilities or poor records | Asset sale |
| depends on a lease, licence or contract that can’t be assigned | Share sale (with strong warranties) |
| is a small, owner-run sole trader or partnership business | Asset sale — there are no shares to buy |
| has a seller who won’t proceed unless it’s shares | Share sale, priced for the extra risk |
| is being bought with significant borrowed money | Whichever gives the lender the clearest security picture |
Unsure which product suits your purchase overall? The loan finder walks through it in a few questions.
Buying a business? Get the funding question answered alongside the structure
Share or asset, the purchase works best when the money is lined up at the same time as the legal structure — not scrambled together the week before settlement. We look at business purchases regularly, including ones where the deposit comes from property equity or the vendor is carrying part of the price.
Telling us about your purchase takes about 60 seconds, and there’s no credit check when you first enquire. Your details aren’t sent out to a pile of lenders, so your phone won’t light up with strangers. A real person reads your enquiry, looks at the deal you’re actually doing, and calls you to talk it through. Please fill the form in accurately — the purchase price, your contribution and whether you’re buying shares or assets — so we can point you to the right option on the first call.
Frequently asked questions
Is it better to buy the shares or the assets of a business?
There's no universal answer. Asset purchases usually give the buyer a cleaner start because the seller's debts and history stay with the seller. Share purchases can be simpler when licences, leases, contracts or tenders are held by the company and are hard to transfer. Your lawyer and accountant should weigh the specific deal.
Why do sellers often prefer a share sale?
Selling shares lets the seller walk away from the company as a whole, including its liabilities, in one transaction. Depending on their circumstances, the tax outcome on selling shares can also be more attractive, including access to small business CGT concessions if the eligibility conditions are met.
Is GST payable when I buy a business?
In an asset sale, GST can apply unless the sale qualifies as a GST-free supply of a going concern — which, among other conditions, requires the buyer to be registered or required to be registered for GST and both parties to agree in writing. In a share sale, you're buying shares rather than the business assets, so the going concern question doesn't arise in the same way.
Do the employees transfer when I buy a business?
In a share sale, the employer company doesn't change, so staff stay employed by it with their accrued entitlements. In an asset sale, staff who take up jobs with you may trigger the Fair Work transfer of business rules, which decide which past service and entitlements you have to recognise.
Can I get a business loan to buy shares in a company?
Yes. Lenders fund share purchases as well as asset purchases. They'll usually want detailed due diligence on the company being bought, may take security over its assets as well as your own property, and will often ask for personal guarantees from the directors.
What happens to the company's existing loans in a share sale?
They stay with the company. Many business loans and equipment finance contracts treat a change in ownership as an event that needs the lender's consent or allows the debt to be called up, so these facilities are usually either paid out at settlement or consented to in advance.
Do I need to tell ASIC when I buy shares in a company?
Yes. ASIC says a transfer of shares between shareholders must be notified within 28 days, using a change to company details form. Your accountant or lawyer normally handles this as part of settlement.