Selling to Family or Staff: How It Works

Not every owner wants an outside buyer, and some businesses won't find one. Selling to a son or daughter, or to the managers who already run the business, can keep it going and reward the people who helped build it.

It's still a sale, but the risks sit in different places. The buyer usually can't pay up front, and the family relationships outlast the deal.

Shares or business assets

Your accountant advises on the tax. The legal differences are these.

1. A share sale. The buyer acquires the shares in your company, which keeps its contracts, staff and licences. Queensland charges no transfer duty on shares in a private company as such (Duties Act 2001 (Qld), s 10(1)). But landholder duty can apply if the company or a subsidiary has Queensland land-holdings worth $2 million or more and the buyer, with related persons, ends up with 50% or more (ss 158, 159, 165 and 167). Family members are related persons, so your remaining shares can count (s 164).
2. An asset sale. The buyer acquires the business itself. Queensland transfer duty applies to business assets, including goodwill (ss 10(1)(d) and 35(1)(a)). Staff who move across are usually transferring employees (Fair Work Act 2009 (Cth), s 311). Their service carries over (s 22(5)). A buyer that isn't an associated entity of the seller can refuse to recognise it for annual leave and redundancy pay, but an associated entity can't (ss 91(1) and 122(1)). A company your child controls isn't necessarily associated with yours (Corporations Act 2001 (Cth), s 50AAA).

If the business is run through a discretionary trust with a company as trustee, transferring shares in that trustee company can attract corporate trustee duty, with no $2 million threshold (Duties Act, ss 207 and 209). A transfer to a family member can be exempt if the trust's default beneficiaries are all family members (s 225). Managers who aren't family get no such exemption.

How the buyer pays

Family and staff buyers rarely have the full price. The usual answers:

1. Vendor finance: you lend the buyer the price, and they pay you over time.
2. Staged transfers: the buyer acquires the shares in tranches as they pay.
3. Payment from the business's profits: for example, dividends paid to the buyer to fund the instalments.

The third option needs care. If the company helps fund the purchase of its own shares, by paying those dividends, lending to the buyer, or guaranteeing or securing the buyer's debt to you, that can be financial assistance. It's allowed only if it doesn't materially prejudice the company, its shareholders or its ability to pay its creditors, or if the shareholders approve it, or if an exemption applies (Corporations Act, s 260A). Shareholder approval has its own process, including notice to ASIC at least 14 days before the assistance is given (s 260B). A breach doesn't invalidate the sale, but anyone involved in it can face civil penalties, and that can include you (ss 79 and 260D).

If your family or staff already hold shares, the company can buy back yours instead. That needs shareholder approval, and it mustn't materially prejudice the company's ability to pay its creditors (ss 257A and 257D).

Protecting yourself as the lender

Once you've sold on terms, you're the buyer's creditor, and you want to be a secured one.

1. Take security at completion, not later when payments fall behind. Later security for an existing debt is easier for a liquidator to set aside, for up to 4 years if you or a relative is a director or shareholder of the buyer company (ss 588FA, 588FE and 588FJ).
2. Register it on the Personal Property Securities Register within 20 business days after the security agreement comes into force. A late registration can be lost if the buyer company goes into liquidation, administration or restructuring within 6 months after you register (Corporations Act, s 588FL), and an unperfected interest can vest in an insolvent or bankrupt buyer (Personal Property Securities Act 2009 (Cth), s 267).
3. In a share sale, take control of the shares as well as registering, for example by holding the share certificate and a signed transfer. Security perfected by control has priority over security perfected only by registration (s 57(1)).
4. Get guarantees in writing from the buyer's directors or family where appropriate. In Queensland, a guarantee must be in writing and signed to be enforceable (Property Law Act 2023 (Qld), s 69).
5. Keep some control until you're paid, such as a board seat or a veto on major decisions, with a right to take the shares back on default, registered as security (Personal Property Securities Act, s 12).

Fairness between your children

If one child gets the business and the others don't, the will has to deal with it. The Supreme Court can order provision from your estate for a spouse, child or dependant if your will doesn't make adequate provision for their proper maintenance and support (Succession Act 1981 (Qld), s 41(1)). A claim must be started within 9 months of death unless the court allows otherwise (s 41(8)).

A sale at market value on vendor finance helps. The debt your child owes you is an asset of your estate, so the business isn't simply given away. If your will forgives that debt, that's a benefit the other children can question. Work out your sale, your will and your estate plan together, and tell the whole family what you're doing and why.

Selling to staff

If you control the company, an offer to sell your shares needs a prospectus unless an exemption applies (Corporations Act, s 707(2)). Offers to a senior manager who isn't a director, or to their spouse, parent, child, brother or sister, are exempt (s 708(12)), as are personal offers to no more than 20 investors raising no more than $2 million in 12 months (s 708(1)). The employee share scheme rules suit incentive plans, but their $30,000 annual cap per participant for paid offers in an unlisted company makes them unsuitable for a buyout (s 1100ZA).

The handover

1. Your role after the sale. Agree whether you'll stay on as a consultant, employee or director, and on what terms. If you're a director, a benefit the company gives you in connection with your retirement may need shareholder approval (ss 200B and 200E).
2. Your restraint. Put your restraint in the sale agreement, tied to the goodwill you're selling. Queensland courts scrutinise restraints given on a sale of a business less strictly than restraints on employees, but look at the substance of the deal (GBAR (Australia) Pty Ltd v Brown [2016] QSC 234). Keep it separate from any employment terms.
3. Your will. Make sure your executor has power to complete a staged sale if you die before it's finished.

If you're thinking about passing your business to family or selling to your managers, you can book a consultation with me to work through how it could be structured.

The law in this article is stated as at 12 May 2026.

Joe Kafrouni, Director and Accredited Specialist (Business Law), Kafrouni Law

Disclaimer

The information provided by Kafrouni Law is intended to provide general information and is not legal advice or a substitute for it. Business people should always consult their own legal advisors to discuss their particular circumstances. Kafrouni Law makes no warranties or representations regarding the information and excludes any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Law.

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