What to Consider in a Share Sale Transaction

If you are unsure about what you should consider in a share sale transaction, continue reading and feel free to send me an InMail for some more advice.

1. Continuity – In a share, be carried on by the same entity with the shareholders of that company changing. In some instances, customers and suppliers may not even realise that there has been a change of ownership.

2. Employees – Usually employees remain with the entity and purchaser in a share sale. Apart from possible provisions in the sale and purchase agreement that may provide for redundancy of specific staff or specific benefits to be paid upon change of control of the business, the legal identity of the employer remains the same.

3. Assignment – Conditions which prevent assignment of certain contracts (such as leases) may not arise as the contracting party remains the same. This means that it may be easier to sell the shares than re-assign or novate a large numbers of contracts or licences. Some agreements often have a ‘Change of Control’ clause which may have implications for the purchaser. This needs to be addressed by the purchaser under due diligence.

Tax consequences: the company being sold may have franking credits, tax losses or undisclosed tax liabilities present. Remember that the purchaser of shares inherits all the “skeletons in the cupboard” of the entity acquired, and warranties in the share sale agreement may be of little future value if the vendor has dissipated the funds received, or has moved to another country.

4. Unrecorded liabilities – There may be tax liabilities or warranties that the vendor has made, which may not be evident to the purchaser. It is important to ensure tax, legal and accounting due diligence is undertaken in an effort to identify these liabilities prior to completion.

5. Stamp duty – The opportunity to minimise Stamp Duty in a share sale transaction often makes it more attractive for the purchaser to acquire the shares than the assets. Each state in Australia has different stamp duty rates.

6. Warranties – The purchaser should ensure they obtain relevant warranties from the purchaser to ensure they are not left with unresolved liabilities at completion such as unpaid fringe benefit tax or payroll tax.

If you have any more questions or would like some advice, send an enquiry to [email protected]

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