A number of my clients who come to me wanting to sell their company do not realise that there is a big difference between selling their company and selling their business. Did you know that there’s a difference between buying a business and buying a company?
Buying a business means you are purchasing the assets that make up the business – for example, client lists or intellectual property rights. You can choose to purchase some or all of the assets owned by an entity from land to machinery and trading stock. The good thing about an asset purchase is that you don’t have to take on an entities’ liabilities (although these are sometimes deducted from asset price).
However, an asset purchase does not include employee relationships as these cannot be transferred this way without the employee first terminating the original employment contract, then entering into a new one with the business purchaser. Further, it is important to note that some assets may require third party consent prior to assignment – this is generally the case when it comes to lease agreements such as a property or equipment lease. Make sure everything checks out before you pay!
On the other hand, buying shares in a company can mean that you’ll be taking on everything – not only assets, but liabilities of the company from leases, employee liabilities, and tax obligations and the risk of any litigation. On the positive side, you get to maintain the company’s supplier and employee relationships without having to renegotiate a contract. It is still important to review any contracts you’re expecting to enter as the company to ensure you understand any implications of any ‘Change of Control’ clauses – a thorough due diligence process should identify this.
If you need assistance or advice about purchasing or selling a business or company, do not hesitate to contact me on 1300 033 934 or email me at for a no-obligation chat.
Source: Crowe Horwath