Here’s a scenario worth walking through. You receive two offers for your business, both at $2.5 million. Same price. Different structure.
Offer A is an asset sale. The buyer purchases your goodwill, plant, and equipment, takes assignment of your key customer contracts and commercial lease.
Offer B is a share sale. The buyer purchases your company shares and takes ownership of the entire entity.
Same money. Completely different tax outcome. And if you don’t understand the difference, you might accidentally accept the worse deal — or give away a significant negotiating point before you even know it was on the table.
What Each Structure Actually Means
In an asset sale, the buyer selects the assets they want. Goodwill, physical equipment, stock, intellectual property, specific contracts. The legal entity — the company — stays with you. You wind it up after settlement.
In a share sale, the buyer purchases your shares in the company. They’re not buying the assets directly; they’re acquiring the legal entity that owns them. Everything in the company becomes theirs: the assets, yes, but also the full history of the business, every obligation, every open warranty claim, and anything the ATO might come asking about from three years ago.
The distinction sounds like a technicality. The financial consequences are not.
Why Sellers Almost Always Prefer Share Sales
The main reason is tax — specifically, how your proceeds are classified.
In a share sale, you’re selling an asset you personally own: your shares. If you’ve held them for more than 12 months (likely), you’re entitled to the 50% general CGT discount. If you qualify for the small business CGT concessions — which at $2.5 million you very likely do — you can potentially reduce your capital gains tax to near zero.
More importantly, every dollar you receive is treated as a capital receipt. No GST. No ordinary income. Just a capital gain, subject to whatever concessions apply.
In an asset sale, the picture is more complicated. Goodwill is still a capital gain — that part’s fine. But trading stock is ordinary income, taxed at your full marginal rate with no CGT discounts available. Plant and equipment may generate balancing adjustments under the depreciation rules. So the total proceeds get carved up into different tax treatments, and some of that carve-up is genuinely costly.
For a business with $300,000 in stock and $200,000 of depreciated equipment, the difference in tax treatment between an asset and share sale on those items alone can be $50,000-$100,000 in additional tax. That’s before we get to the goodwill portion.
Why Buyers Almost Always Prefer Asset Sales
Buyers live on the other side of this coin, and they have entirely rational reasons for their preference.
When you buy shares in a company, you inherit everything. Not just the good stuff — the entire legal history of the entity. Tax debts you didn’t know about. Employee claims from three years ago. Warranty obligations from work completed under the previous owner. A lease personally guaranteed by the former director that now rests on you.
Lawyers call this successor liability. Business buyers call it getting the keys to someone else’s problems.
An asset sale is cleaner. The buyer selects exactly what they want, acquires it into a fresh entity, and leaves the old company’s history behind. Any liabilities that don’t transfer with specific contracts stay with the seller to resolve.
There’s also a depreciation angle for buyers. In an asset sale, they can allocate the purchase price across different asset classes and depreciate physical assets from their new, higher purchase price. Goodwill in an asset sale is amortisable over 40 years for tax purposes. In a share sale, the buyer simply has a higher cost base for the shares they hold — they get no immediate depreciation benefit on the underlying assets, and no deduction flowing through to their P&L.
The Negotiation in the Middle
In practice, neither buyer nor seller gets exactly what they want. Structure is a negotiating point — and most transactions land somewhere in the middle.
The most common resolution: the parties agree to an asset sale, but the buyer pays a price premium to compensate the seller for the additional tax cost. A useful rule of thumb — not always accurate, but useful — is that sellers typically need a 5-15% premium on an asset sale to end up in the same after-tax position as a share sale at the same headline price.
Whether you can extract that premium depends on your leverage. If you’re running a competitive process with multiple bidders, you have real power to insist on a share sale structure. The more buyers competing for your business, the less accommodating you need to be on terms like this.
If you’re dealing with a single buyer and no competitive tension — say, someone who approached you unsolicited — they’ll push for an asset sale. Make sure your advisor has modelled your after-tax position under both structures before you agree to anything.
The Sole Trader Problem
Here’s something that catches people by surprise: if you operate as a sole trader, you cannot do a share sale. There are no shares to sell.
The same applies to partnerships and trust-operated businesses — there’s no share structure, so an asset sale is your only option. You sell the business assets, the buyer takes them into their own entity, and you wind down your operation.
For sole traders, this is simply the reality. But it also makes the point that the structuring decisions you make years before a sale matter. Operating through a company gives you optionality at exit. A sole trader structure removes it.
If you’re years away from selling and currently operating as a sole trader, ask your accountant whether transitioning to a company structure makes sense for your situation. The earlier you do it, the cleaner the history — and the more flexibility you have when the time comes.
The Trust Complication
Trusts are the middle case worth understanding, because a lot of Australian business owners operate through them.
If your business assets are held by a discretionary trust (with a company trustee), technically you can’t do a share sale of the trust — trusts don’t have shares. You can sell the trustee company’s shares, but that’s not the same thing and creates its own complexity. Alternatively, you can restructure the business into a company prior to sale.
The restructuring path isn’t simple. It can trigger stamp duty, requires careful application of the CGT rollover concessions, and you’ll need clean trading history in the new structure for at least 12-24 months before most buyers are comfortable. That means the clock starts when you restructure, not when you decide to sell.
If your business runs through a trust and you’re thinking about a sale in the next 3-5 years, get advice on your exit structure now. Not a year before you want to go to market.
Employees and Leases: What Changes at Settlement
Two operational issues surface in almost every asset sale that are worth being clear about.
Employees. In an asset sale, employees aren’t automatically transferred — they’re typically terminated by the seller and re-engaged by the buyer. The seller pays out all accrued entitlements at settlement: annual leave, any long service leave that’s vested, notice periods. For a business with 15 long-serving staff, that cash payout can run $150,000-$400,000 — and it comes out of your settlement proceeds.
In a share sale, employees remain employed by the same company. No redundancies, no payouts at settlement. The buyer inherits accrued entitlements as a balance sheet liability, which they’ll factor into their valuation, but you as the seller don’t fund the cash payout.
Leases. A lease held in the company’s name stays with the company in a share sale. Straightforward.
In an asset sale, the lease needs to be assigned from your entity to the buyer’s. That requires landlord consent — and landlords don’t always cooperate quickly or unconditionally. They may want personal guarantees from the new owner, an increased bond, or use the moment to push for a rent review. The consent process alone can add weeks or months to your settlement timeline, and in some cases it’s the item that kills a deal.
If your premises are a key part of the business, get your advisor talking to the landlord early in the process. Don’t leave it to the lawyers to sort out in the final week before settlement.
When Share Sales Become Impractical
Even if you want a share sale and the buyer is theoretically willing, some situations make it impractical — or kill the option entirely.
Active ATO issues. An unresolved tax dispute, a payment arrangement, or an amended assessment still being worked through will make most buyers walk away from a share sale, even if the amount is modest. The uncertainty is too hard to price.
Hidden liabilities surfaced in due diligence. If the buyer’s lawyers and accountants find undisclosed warranty claims, employment disputes, or director loan accounts that aren’t clean, they’ll often switch to an asset sale as a risk-mitigation measure — regardless of what the term sheet said.
Complex entity history. Dormant subsidiaries folded into the operating company, dividends that weren’t properly documented, trust distributions with no clear paper trail — these create audit risk for any buyer taking over the entity. Buyers will either walk away or demand an asset sale with a substantial escrow or vendor warranty package.
The best pre-sale preparation, if you want a share sale, is to clean up the company’s history at least 12-24 months before going to market. Clear ATO matters. Document loan accounts. Resolve anything that looks like a liability lurking in the balance sheet. Make the entity itself attractive to buy — not just the business inside it.
What This Means Before You Go to Market
The asset sale vs share sale question isn’t something to leave for the lawyers to resolve when a term sheet arrives. By that point, you’ve already lost leverage.
If you’re operating through a company with clean books and a solid history, you’re in a strong position to negotiate a share sale — and you should know that going in. If you’re a sole trader, or your company has complexity that needs cleaning up, you’ll be doing an asset sale, and you need to understand what that means for your tax outcome before you set a price expectation.
The difference between the two structures, in the right circumstances, can be $100,000-$300,000 in after-tax proceeds on a $2-3 million sale. That’s not a rounding error.
Run your numbers before you go to market. Use our valuation calculator to get a starting point, then talk to us about structure and tax before you decide on a sale price.
Related reading:
- Tax on Selling a Business in Australia — CGT concessions and how the small business rules work in detail
- Preparing Your Business for Sale — the 12-month checklist to maximise value and reduce deal risk
- The M&A Process Explained — what to expect from start to finish