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Most owners preparing to buy or sell a business focus on price first. Price matters, but the decision that actually determines whether a deal goes well or falls apart is made earlier: how the transaction is structured. Get that wrong and the tax bill, the liability exposure, and the post-settlement disputes all follow from it.
This guide covers both sides of the table, buyer and seller, and the legal decisions that matter most once heads of agreement are signed and the lawyers start drafting.
In an asset sale, the buyer picks the specific assets and contracts they want (equipment, client lists, leases, goodwill) and leaves the liabilities behind with the seller’s existing entity. In a share sale, the buyer acquires the company itself, which means every liability, known or not yet discovered, comes with it.
Buyers generally prefer asset sales because they limit exposure to historical risk. Sellers often prefer share sales because the disposal can attract more favourable capital gains tax (CGT) treatment and avoids the cost of re-assigning every individual contract. Stamp duty treatment also differs between the two structures depending on the state and the asset mix involved.
The problem we see most often: parties reach the term sheet stage having never discussed which structure applies, then discover during due diligence that the buyer’s and seller’s assumptions do not match. That mismatch derails deals that were otherwise ready to close. Deciding the structure before the term sheet is signed, not after, is the single change that would prevent the most common breakdown we encounter.
The standard due diligence list is well covered elsewhere: financial statements, material contracts, intellectual property registrations, employee entitlements, and lease terms. A competent accountant and lawyer will run through this list as a matter of course.
What gets missed more often is subtler. Change-of-control clauses buried in supplier contracts or commercial leases can trigger termination rights the moment ownership shifts, sometimes killing a deal at settlement rather than during negotiation. Accrued employee entitlements (long service leave, unused annual leave) need to be priced into the deal, not treated as a post-completion surprise. Personal goodwill, the reputation and relationships tied to the outgoing owner, does not transfer the way transferable goodwill does, and buyers who fail to distinguish the two often overpay.
Businesses typically take 4 to 9 months to sell in Australia, and the deals that blow past that window are rarely stalled by the financial statements. They stall on the items that were never in the data room to begin with.
Selling a business triggers capital gains tax. For eligible small businesses, the Australian Taxation Office offers four CGT concessions: the 15-year exemption, the 50 per cent active asset reduction, the retirement exemption, and the small business rollover.
Used correctly, these concessions can reduce the CGT payable on a sale to zero. Eligibility is strict, though. Broadly, a business needs an aggregated turnover of under $2 million or net assets of under $6 million to qualify, and to pass the active asset test.
CGT planning needs to start at least twelve months before any sale, not during negotiation once a buyer is already at the table. Owners who wait until a term sheet is signed to think about structure lose the ability to plan around these thresholds, and often lose the concession altogether. Our piece on the exit-planning blind spot covers why so many owners leave value on the table by leaving this too late.
The broad sequence is well documented by business.gov.au, so we will keep this brief. A heads of agreement or term sheet sets out exclusivity, price, structure, and conditions. Due diligence follows, run primarily by the buyer. The sale contract and disclosure schedules set out warranties and representations. Conditions precedent, finance approval, lessor consent, and employee transfer arrangements need to be satisfied. Settlement completes the transaction.
Most disputes we see arise between the sale contract stage and settlement, not during the initial negotiation. That is where warranty wording, disclosure gaps, and unresolved conditions precedent tend to surface.
Do I need a business broker to sell a business in Australia? A broker is not mandatory, but many sellers use one to manage buyer enquiries and marketing. A broker does not replace the legal work required to properly structure and document the sale.
What is the difference between an asset sale and a share sale in Australia? An asset sale transfers specific assets and leaves liabilities with the seller’s entity. A share sale transfers ownership of the company, including its liabilities, known and unknown.
How long does it take to sell a business in Australia? Typically 4 to 9 months, depending on preparation, buyer readiness, and how quickly due diligence issues are resolved.
What taxes do I pay when selling a business in Australia? Capital gains tax applies, though eligible small businesses may access one or more of the four CGT concessions described above.
Whether you are buying or selling, the legal structure decision comes before the price negotiation, not after it. Asset or share sale, tax planning, and the scope of due diligence all flow from that choice.
We work with buyers and sellers on both sides of Australian business sales and acquisitions, and with owners preparing for exit readiness well before a buyer appears. If a share sale is on the table, our work on shareholders agreements is often the first thing we check. If you are buying or selling a business, talk to us before you sign anything. Lodge an enquiry to start the conversation.
Tammi McDermott is Managing Director of Lawnch, a legal, R&D and grants advisory firm for owner-led Australian businesses working through capital raising, exit readiness, and business sales and acquisitions.
