By Darcy Gordon (Solicitor) and Damian Quail (Principal) at Williams + Hughes.

With favourable trends in inflation and official interest rates and debt and equity funding being available, the private M&A market in Australia is expected to remain strong through the second half of 2025.

The acquisition of a private business typically takes the form of either:

• an asset acquisition, where the assets of a business are purchased (and certain liabilities assumed); and
• a share acquisition, where the share capital in the company that runs the business (the target company) is purchased.

In this article, we give a brief outline of the key features of and differences between an asset acquisition and share acquisition.

Asset acquisition

An asset acquisition involves the purchase of some or all of a company’s assets, such as equipment, inventory, real property, goodwill, customer contracts and lease agreements. The target company’s employees typically transition across to the buyer.

In an asset acquisition, there is more scope for a buyer to be selective about the assets and employees it will acquire/take over.

There is also more scope for a seller to select the assets it wishes to divest or retain. However, in our experience, a seller will typically want a buyer to acquire all the assets of the business, to maximise returns and limit retention of redundant assets.

From a buyer’s perspective, an asset acquisition limits its exposure to the liabilities of the seller. In contrast to a share acquisition, under an asset acquisition, the seller typically retains most or all liabilities of the business (in respect of things like the conduct of the business before the sale, historical tax liabilities, trade debtors, etc), other than those specifically assumed by the buyer.

There are limited exceptions, such as in respect of accrued entitlements of employees. The Fair Work Act requires that certain employee entitlements transition through to the buyer.

Further, there is typically more paperwork and transaction costs involved in an asset acquisition.

When a business is being transferred by way of asset acquisition, each asset must be transferred per the formalities for a transfer of an asset of that nature. For some assets, this will be a case of simply physically delivering the asset to the buyer, but in other cases, the formalities are more onerous. Formal transfer forms need to be prepared, and Government transfer procedures need to be followed.

Further, the seller may have to obtain third-party consent when assigning contracts or certain assets. And in addition, if the assets being sold are subject to any security interest, the seller will have to procure the release of the assets from the security before settlement. This can be a significant obstacle to the successful completion of an asset sale and requires careful management to avoid any last-minute issues.

Taxes may also be higher with an asset acquisition. Transfer duty (around 5% in Western Australia) will be payable on certain classes of assets transferred. In addition, GST will apply to any asset acquisition where the acquired assets are less than what is necessary to operate the acquired business on a “going concern” basis.  This can add a significant additional cost/cashflow impact to the transaction.)

Share acquisition

The acquisition of shares of the target company involves the purchase of 100% of the shares in the target company. By buying the shares, the buyer effectively assumes all of the target company’s liabilities, including contingent or undisclosed liabilities such as undisclosed tax liabilities, historical breaches of legislation affecting the business or claims by customers or employees.

To safeguard the buyer from such exposure, the buyer’s representatives (both legal and financial) must carry out a thorough legal and financial due diligence process to ensure all potential liabilities are identified and understood, and also to assess whether there has been full disclosure by the seller. This process allows the buyer to either confidently proceed with the acquisition or renegotiate the terms to account for any unwanted liabilities.

Typically, a share transaction is favoured by sellers because of the tax benefits. The proceeds of a share disposal are taxed as a capital gain, and this may give a seller access to various CGT exemptions (including the 50% deduction for shares held for more than 12 months). As a result, the seller may be willing to negotiate a lower price in exchange for the buyer proceeding with a share acquisition transaction.

There are also tax benefits for a buyer of shares. GST is not payable on a share transfer, and transfer duty is generally not payable unless the target company holds certain interests in land.

A share transaction is also typically less complex than an asset transaction, with fewer transfer documents. This may deliver lower transaction costs. That said, consents may still need to be obtained from customers, suppliers, lenders and landlords if there is a change in the control of the target company. Security registrations against the shares being sold also need to be removed, and some buyers will also insist on the removal of certain security registrations against the target company (depending on what the registrations relate to).

Conclusion

When you are looking to acquire a business, choosing the appropriate structure for the transaction is critical to ensuring a smooth acquisition process and the continued success of the business post-acquisition. It is also critical to consider potential liability and tax implications, and to take steps to protect your investment – including conducting appropriate due diligence.

At Williams + Hughes, we are happy to discuss your proposed acquisitions on a no-obligation basis.

The above information is of a general nature and has been simplified for this article. For more detailed advice and assistance with your next business acquisition, please contact our corporate team at office@whlaw.com.au.