Share Sale vs. Asset Sale: Choosing the Right Structure for Your Agency Sale

O*NO! Ever had that sinking feeling that you've taken the wrong path? That's exactly how many real estate agency owners feel when they realise they might have chosen the wrong structure for selling their business. Whether you're in the early stages of selling your agency or simply planning ahead, understanding the differences between a share sale and an asset sale could save you from some serious headaches (and potentially a lot of money!) down the track.

Share Sale vs. Asset Sale: What's the Difference?

Think of it this way: an asset sale is like selling everything in your house piece by piece, while a share sale is like selling the entire house with everything in it.

• Asset Sale: You’re selling individual components of your business—such as your rent roll, equipment, goodwill, and more.

• Share Sale: You’re selling the company itself, complete with everything it owns and owes.

This distinction matters, especially for real estate agency owners. In certain states like NSW, the ACT, and sometimes Victoria, property management agreements aren’t assignable to a new owner. This can mean that in an asset sale, you'll need to secure new agreements with every landlord—a potentially huge task. In contrast, a share sale keeps the company intact (just with new owners), so those existing agreements remain valid, saving you a ton of hassle. Sellers may also enjoy tax advantages with share sales, potentially saving thousands in capital gains tax.

The Buyer's Perspective: Why They Might Get Cold Feet

Now, let’s flip the script and put ourselves in the buyer’s shoes. Buying shares in a company doesn’t just mean acquiring the good stuff; it also includes any “skeletons” hidden in the company’s closet. This might include:

• All past liabilities (even ones you don't know about yet)

• Potential tax issues from previous years

• Any ongoing legal disputes

• Employee-related obligations

For buyers, it’s similar to buying a used car—you don’t always know what surprises might come with it. This risk is why many buyers prefer asset sales, as they can be selective, picking only the assets they want and avoiding potentially risky obligations.

Making It Work: Smart Contract Structures

Don't worry - there are ways to make share sales work for everyone! Think of it like buying that used car with a really good warranty and service history.

When it comes to structuring a share sale, it’s essential to address buyer concerns while protecting the seller’s interests. After all, buyers might hesitate due to the perceived risks of inheriting everything within the company—including liabilities and past obligations. To make a share sale more attractive, here are some strategies that can build confidence and create a smoother path to closing the deal –

Comprehensive Warranties and Indemnities: Buyers need assurance that they aren’t stepping into hidden problems. Sellers can offer warranties (promises about the state of the business) and indemnities (promises to cover specific losses if something goes wrong). For example, warranties might guarantee there are no hidden liabilities, while indemnities could cover unexpected costs, like outstanding tax issues. This helps buyers feel secure, knowing the seller has “skin in the game” and stands behind the condition of the business.

Contingency Amounts: Holding back a portion of the purchase price as a “safety net” in case issues arise after the sale.or instance, if an unexpected liability arises, the buyer can draw from this fund to cover it. These arrangements balance risk and create a level of trust that makes a share sale more appealing.

Pre-Sale Due Diligence & Disclosure: While buyers usually conduct their own due diligence, sellers can go a step further by offering a pre-sale disclosure pack. This includes financial records, employee agreements, pending litigation (if any), and other key documents that showcase the business’s current state. By openly sharing this information, sellers demonstrate transparency and reduce buyer uncertainty. Additionally, it saves time in the negotiation process, as buyers can spot any potential concerns early on.

Key Staff Retention Agreements: Often, the buyer's biggest fear isn’t just liabilities, but also losing valuable team members after the sale. To make the deal more attractive, the seller can negotiate retention agreements for key employees. This ensures that vital team members remain with the company for a set period, helping the buyer maintain continuity and reducing operational risks associated with employee turnover.

Third-Party Audits and Assurance: To add an extra layer of confidence, sellers can hire a third-party auditor to verify financial statements, compliance records, and other vital aspects of the business. This independent verification can help the buyer feel more confident in the numbers and reduce concerns about discrepancies. It’s like giving the buyer a “clean bill of health” for the business, which can be especially valuable in high-stakes transactions.

Ongoing Seller Support or Consultancy: Sellers can agree to provide consultancy support for a defined period post-sale to facilitate a smooth transition. This can be invaluable for a buyer who’s unfamiliar with certain aspects of the business. By offering training, strategic guidance, or operational insights, sellers can ease the buyer’s transition, minimise disruptions, and help the business continue to thrive. This support period can also help the seller demonstrate goodwill and foster a strong working relationship with the buyer.

Key Takeaways

Share sales save you from having to get new Management Agreements signed in some States and Territories

• Sellers often get better tax treatment with share sales

• Buyers take on all company liabilities in a share sale

• Smart contract structuring can protect both parties

• Due diligence is crucial in share sales

YOUR NEXT STEPS

Ready to structure your agency sale the smart way?
Don't leave it to chance! Our team specialises in helping real estate agency owners navigate these tricky waters.
We can help you:

• Assess which sale structure works best for your situation

• Review your management agreements and liabilities

• Structure the deal to protect everyone's interests

• Handle the legal paperwork properly

Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.