Such “skeletons” could range from liabilities for employee entitlements to debts with the Australian Taxation Office or potential public liability claims. 

While this means many solicitors will counsel purchasers against a share sale, there are steps which can be taken to limit the purchaser’s risk and enable both parties to access benefits that may arise in a share sale, rather than an asset sale. 

It is a matter of getting the right specialist business law advice to ensure the appropriate protections are taken.

A vendor may realise significant benefits in a share sale in extracting profits after completion of the sale because there may be different Capitals Gains Tax (CGT) concessions and exemptions applicable to a share sale rather than an asset sale. 

In an asset sale, there are also tax consequences and accounting costs for a vendor shareholder who extracts profits from the company on the completion of the sale of the shares.

For a purchaser, a share sale may be significantly more advantageous in avoiding transfer duty (stamp duty) in Queensland which would otherwise apply in an asset sale. 

What it all means?

The key issues for parties in deciding whether to proceed with an asset or a share sale are maximising profits for the vendor, minimising costs for the purchaser and limiting risk for both parties. 

It is important for parties in both an asset or share sale to get specialist legal, financial and accounting advice on these issues so they can get the best possible result, whether they are purchasing or selling the business. 

Particularly with respect to purchasers of share sale, there are certain steps which should be taken as a matter of course to set up the transaction to provide the best possible protections in limiting the risk of the “skeletons”.