Asset sales versus share sales in the accommodation industry

Key takeaways

  • When someone is looking to purchase an accommodation business, they are likely to be encouraged by their solicitor to buy through an asset sale process rather than a share sale
  • A share sale can offer financial benefits for a purchaser and vendor that an asset sale does not
  • With the right protections in place, a share sale may be a better option than an asset sale when buying or selling a business

The sale of an accommodation business is usually conducted as an asset sale which means the transaction involves a sale of all assets including the business name, domain name and stock. It also includes the transfer of all leases, licences and material contracts required to carry on the business from the vendor to the purchaser. 

A purchaser can also acquire a business through a share sale, where they purchase shares giving them ownership of the vendor entity.

A share sale is not as common as an asset sale, in part because there are significant risks for a purchaser. By acquiring all the shares in the company and taking over as Director, a purchaser also becomes liable for all the "skeletons in the closet" of the vendor company.

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". 

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute legal advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek legal or other professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.