Buying a Business? The Wrong Structure Could Cost You
Risk & Remedy: Acquisition Structures, Asset v Share Purchase
When you buy a business, the deal is not just about price. The way you structure the acquisition, whether by buying the company’s shares or its individual assets, can make or break the success of the deal. Get it wrong, and you could inherit tax headaches, regulatory issues, or hidden liabilities that wipe out the value you thought you were buying.
The Risk in Plain English
Think of it like buying a house. You can either:
1. Buy the whole house “as is” (share purchase), leaky pipes, noisy neighbours, asbestos roof and all; or
2. Pick and choose only the rooms and furniture you want (asset purchase), leaving behind the rest.
In business, the “leaky pipes” are unknown liabilities, things like unpaid employee entitlements, unresolved tax disputes, or hidden litigation. Depending on the structure, you may or may not inherit them.
Share Purchase: The Whole Package
When you buy the shares of a company, you step into the owner’s shoes. You get:
1. All assets: goodwill, contracts, staff, IP, licences, stock, equipment.
2. All liabilities: debts, claims, disputes, warranties, tax exposures, known or unknown.
This can be efficient. Customer contracts, supplier arrangements, and licences usually stay in place automatically, so there’s less disruption to the business. But it’s also riskier: you inherit the entire history of the company.
Example: A buyer who acquired shares in a construction company later discovered the business was under investigation for safety breaches. Even though the breaches happened before the sale, the new owner was liable.
Asset Purchase: Pick and Choose
An asset deal lets you cherry-pick what you want: specific equipment, stock, contracts, goodwill, and even employees. You leave behind liabilities you don’t agree to take.
That said, in practice:
1. Each asset must be legally transferred.
2. Customer and supplier contracts may need consent, which is not received.
3. Leases, licences, and permits may not be transferable at all.
Still, it’s often the safer path when there’s concern about unknown liabilities, or where the buyer only wants part of the business.
Key Factors Affecting the Choice
Unknown liabilities: If there’s any doubt about hidden problems, an asset deal provides more control.
Tax and duty: Stamp duty and capital gains tax outcomes can differ dramatically depending on whether shares or assets are sold. A share sale may be more tax-efficient for the seller, while an asset sale may be better for the buyer.
Consents and approvals: Some licences (e.g. financial services, childcare, health) may not transfer with assets, making a share deal the only workable option.
Debt and security arrangements: If the business has bank facilities, security interests, or guarantees, these need to be addressed. Sometimes it’s easier to sell shares than unwind secured assets.
Partial sales: Selling just part of a business (a single division, brand, or asset group) generally requires an asset deal.
Practicality and speed: Share sales can be more straightforward and quicker, especially where the business has multiple sites, complex contracts, or a large workforce.
Remedy: How to Protect Yourself
Do thorough due diligence: Investigate financials, contracts, HR issues, licences, and litigation risks before choosing a structure.
Model the tax and duty outcomes: What works best for the seller may not work for the buyer. A side-by-side analysis is critical.
Negotiate warranties and indemnities: Even in a share deal, the seller can be made to stand behind certain risks.
Plan the transition: For asset sales, map out which contracts and approvals require consent well before completion.
Get specialist advice early: The right structure is not one-size-fits-all. It depends on your goals, the industry, and the specific business you’re buying.
Final Word
The way you structure an acquisition can protect your investment, or expose you to liabilities that destroy value. A share purchase may seem simpler, but it could come with baggage. An asset purchase offers control but can create extra red tape. Every deal is different.
Before signing anything, get clear legal advice on the structure that safeguards your interests.
Book a consultation
If any of these issues sound familiar, the best next step is to have a proper conversation. I regularly help business owners understand their risks and put practical solutions in place. You can book a consultation with me to discuss your situation and see how I may be able to help.
Buying a business? See Buying a Business in Queensland.
Want my view on your own situation?
Book an initial consultation: up to two hours with me by phone for a fixed fee of $1,650 (including GST), then a short written note of my advice and next steps. If my conflict check means I can't act, I'll refund your fee in full. To check anything first, email
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(07) 3103 3199.
Joe Kafrouni, Accredited Specialist in Business Law, Kafrouni Law
Disclaimer: This article is general information only and is not legal advice. Before acting on it, get advice on your own circumstances. To the extent the law allows, Kafrouni Law accepts no liability for any loss arising from reliance on it. This article is the copyright of Kafrouni Law.
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