There are many reasons business owners end up selling their business.
For example, it might be time for you to step away from your business and let someone else take over. Or you may be moving onto a new project and no longer have the time to dedicate to your existing business.
Either way, selling your business is a big move. And there are different ways to do it.
When there’s a lot of money, people and different moving parts involved, you want to make sure you do it right.
So: how do you do it?
In the legal world, most businesses either sell their shares or their assets. In this article, we’ll walk you through the difference between these two, and answer the most common questions we get around selling a business.
Asset Sales vs. Share Sales
As I mentioned, there are two main types of business sales: asset sales and share sales.
What’s the difference?
As the name might suggest, an asset sale disposes of the assets of a business—selling it from one business owner to another. That means the buyer will then gain control of the assets (from equipment to domain names and goodwill).
This is often the most simple transaction since there are no liabilities transferred across.
On the other hand, share sales are a lot more risky. This is specific to registered companies where the owners have ‘shares’ as shareholders. When a shareholder wants to sell or transfer their shares to someone else, that’s effectively a share sale.
It means transferring the ownership of those shares to another person. In this kind of transaction, there’s a lot more at stake because the liability and ownership attached to those shares are transferred to a buyer. This means that if particular assets are under debt, for example, that debt is transferred over too.
|Asset Sale||Selling the equipment, goods or any other assets owned by a business (including goodwill!).|
|Share Sale||Selling the shares of a company, and transferring ownership of the company altogether.|
To help you understand, let’s walk through an example.
Let’s say that you own a local cafe and you’re thinking about selling it. If you’re looking to go down an asset sale route, you would really only sell and dispose of the assets of the cafe: the coffee machine, the tables, chairs and kitchen equipment. Then, the titles of all those assets are moved over to the new owner.
You would probably also sell the intellectual property, too: the business name, trade marks, trade secrets and goodwill involved.
You wouldn’t have to transfer any shares, as you’re simply moving the ownership of assets to someone else. To put this into effect, you’d need an Asset Sale Agreement. And, depending on what assets you’re selling, there may be other processes you need to consider when transferring those assets. In any case, it’s best to speak to a lawyer first to understand the requirements involved.
However, if you’re doing a share sale, this means you’re selling the ownership of the business altogether.
If we go back to the cafe example, a share sale would mean you’re transferring the ownership and management of your cafe to another person. Nothing would change in the cafe business itself, only the management side of things.
This is high risk because a buyer can walk in to buy the entire cafe and become a shareholder, inheriting all assets and liabilities of that company.
To put a share sale into effect, you’ll need a Share Sale Agreement.
Additionally, you’ll need to notify the Australian Securities and Investments Commission (ASIC) of the changes to your company and its shareholders, so it’s a good idea to speak to a lawyer first!
I’m Selling My Business… What About My Employees?
Selling a business involves contracts that move around assets and shares. But with any business, you’re likely to have staff that are employed by your business.
Before you sell a business, you really need to think about your employees carefully. In most cases in a transfer of business, the employees will be ‘carried over’ to the new business owner.
To do this, you first need to terminate your existing employment agreements with your current employees. This will formally end their employment with you.
If the buyer wants to hire the same employees for the business, they’ll have to enter into new employment agreements with those employees.
We’ve written about what you need to know here.
Can I Sell My Online Business…?
These days, it’s very common to own an online business, as it involves low overheads and high potential for scalability. So, what happens if you want to finally sell your online business?
When you think of an asset sale, this isn’t limited to physical assets. Though there may not be as many assets as your traditional brick-and-mortar business, you can still sell your online business.
This is still typically considered an asset sale, where you’re selling your intellectual property to another person or entity. These ‘assets’ include your website, domain, trade marks, goodwill and branding.
Again, you’ll need some sort of legal document between you and the buyer. We call this a Business Sale Agreement.
We’ve written about selling your online business here.
What About Franchising?
One of the main drivers for business owners selling their businesses is making more money.
You can still do this without completely letting go of your business through franchising.
Franchising is a great way to scale your business. In simple terms, you allow other businesses to take on your brand and intellectual property too.
It helps your brand grow without you actually operating those franchises yourself. And you’ll be able to collect a fee from your franchisees in return for allowing them to use your brand.
In practice, however, it’s really not that simple. Franchising is a really big commitment, and you’ll be bound to the strict rules of the Franchising Code of Conduct.
As opposed to your usual business sale, there are a lot more documents involved if you’re thinking about franchising (we’ve written about them here).
You really need to think carefully before you start to franchise. And, it’s really important that you speak to a lawyer to understand your legal rights and obligations as a franchisor in Australia.
Selling your business is a really big decision, so you want to make sure you do it right.
Whether you’re selling assets, shares or even thinking about franchising, you’re probably going to have a lot of questions. And it’s important to have a good lawyer who can guide you through what you need to know.
At Sprintlaw, we’ve helped many small businesses through the process of selling. We know it can be a really big and exciting journey, so we want to help you through it.Don’t hesitate to reach out to us for a free chat at 1800 730 617 or just drop us a line at email@example.com.
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