Sell your business assets with confidence by reading our ultimate guide to asset sales.
So you’ve made the big decision to sell your business.
You’re not alone. In fact, 12% of businesses stopped actively trading in Australia and completely exited the business market between 2020-21.
Whether you’re downsizing or expanding (and hence selling assets), remember that this is an important step in your journey as a business owner and there are a range of different ways you can go about it.
You may choose to undertake an asset sale in business…
A share sale… OR
It’s truly up to you to decide which best suits your business needs. Your opportunities are endless!
Given the legalities involved in selling a business, it may get tricky. Therefore, to make it easier for you, we’ve formulated an ultimate guide for business owners like yourself, to help you decide which road to take.
In this guide, we place the focus on asset sales, outlining what it is, what you can sell and how it differs from other types of sales.
Let’s get into it.
Table of Content:
- What is an asset sale in business?
- What can you sell in an asset sale?
- Asset sale vs share sale: What’s the difference?
- The benefits of an asset sale and why your buyers prefer it
- Burning questions surrounding asset sales
What is an Asset Sale in Business?
To put it simply, an asset sale is the sale of your businesses assets. Your business’s assets are, of course, the assets your business owns. For example, if you own a clothing store your business assets would be your clothing inventory, brand licenses, computers, EFTPOS machines, even furniture such as racks and shelves.
Therefore, anything you have had to purchase for your business is a business asset.
However, your buyer will only gain ownership and control over the assets they purchase from your business. No more, no less.
Furthermore, you may choose to sell some of your businesses assets or all of your businesses assets. It’s really up to you — the business owner.
Many business owners see asset sales as a great way of doing a ‘spring clean up’ in business. For example, if you want to upgrade your businesses IT equipment or vehicles you’d probably want to sell them off in an asset sale.
It’s also the perfect way to effectively change your business direction by selling the assets it no longer needs. For instance, if you own a sporting goods store but want to change it into an electronics store, there are many items you’d need to sell before making this happen.
After the completion of your asset sale, you can either get back to business or begin preparations for a new business without having to start from scratch.
In effect, the asset sale will leave you with the basic skeleton of what your business was, giving you that clean slate to get creating and start innovating.
What can you sell in an Asset Sale?
If you wish to sell your business it’s important to know exactly what you can and cannot sell in your asset sale.
Broadly speaking, you can sell both tangible and intangible items or assets. However, to make this a little easier, we’ve laid out a list of popular items that can form part of an asset sale in business.
Tangible assets you may sell include:
- Business equipment: This may be any form of equipment, supplies, tools and machinery including office furnishings, computers and so much more,
- Stock and inventory: If you operate your business as a physical or online shopfront your stock or inventory makes up an essential business asset and may include raw materials and finished goods,
- Vehicles: Any vehicle your company owns could form part of your asset sale including company cars and trucks,
- Property and land: Maybe your business owns a piece of land, a building or some commercial space. Any form of real estate, even investments, can be a part of the assets you wish to sell.
Intangible assets you may sell include:
- Patents: You could sell all your businesses patents for its inventions including product patents or patents for your business’ processes.
- Trademarks: This may be your business name, logo, catch-phrase. The list goes on!
- Copyrights: Businesses that create and author material who have copyright protection in place can also sell those copyrights in their asset sale,
- Trade secrets and industry knowledge: That’s right — even your businesses most precious trade secrets can fetch some cash. At times, it’s even more valuable than the physical things,
- Customer lists and databases: Your businesses client lists can also be a valuable part of your asset sale. It should include their name, contact number and much more,
- Domain names: The address name of your business website, this is especially important if your purchaser wishes to operate under your business name.
- Any other licenses and permits owned by your business.
It’s quite the list. But as you can see, you can sell almost any part of your business in an asset sale in business.
However, there is one major aspect of your business that you cannot sell in an asset sale and a pressing question for a lot of business owners.
Is there anything you can’t sell in your business Asset Sale?
Importantly, there is a major thing you cannot sell in an asset sale.
The seller cannot sell the company itself. That’s because you still have ownership and possession of the legal entity and company structure.
After all, the company or entity alone is not an asset to your business, it is your business.
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Asset Sale vs Share Sale: What’s the difference?
There are so many different options to choose from when it comes to selling your business. Do you want to sell part of your business or would you rather sell the entire business?
We can help you decide. Find out which type of sale is right for you in the table below.
|Ownership of company remains with the seller.
|Ownership of company is altered. Buyer purchases some or all of the company shares from the seller.
|Ownership of business remains with the seller.
|Ownership of business remains unchanged. Buyer purchases shares in company that owns the business.
|Buyer will not assume liabilities.
|The buyer may assume liabilities of the business.
|Intellectual Property (IP) Assets
|IP assets must be transferred to the buyer in accordance with IP Australia.
|IP assets don’t need to be transferred to the buyer as the buyer becomes an owner in the business.
|The seller must transfer ownership of assets through a valid contract or agreement.
|Contracts for physical assets will not have to be assigned to the buyer of company shares.
|Employer of employees does not change. However, if your business closes, notice or redundancy rules may apply.
|Although the employer’s name remains the same, the internal makeup of the employer changes.
|Capital Gains Tax Discount
|No CGT discount is available. Profits made on asset sale must be fully declared in the seller’s tax return.
|Seller may be eligible for a 50% CGT discount on profits made from selling their shares. The availability of this discount is dependent on the length of time the seller has held their shares.
|GST may apply to assets sold if the seller is registered for GST.
|No GST will apply to the sale of shares.
The benefits of an Asset Sale and why your buyers prefer it?
There is no doubt that an asset sale in business has umpteen benefits. These benefits are for you — the business owner. But, a lot of these benefits also extend to your buyers. Therefore, it’s a win-win for everyone.
What are those benefits, you ask? Read along.
Benefits for the Business Owner
For business owners, the first major benefit that comes out of an asset sale is the fact that the seller can pick and choose exactly what they want to sell. Therefore, you don’t have to sell all your business assets, only the ones you don’t want or need.
The second major benefit is that business owners are able to provide fewer warranties and indemnities in an asset sale. This is because your buyer will not be exposing themselves to many high risks when simply purchasing assets.
In general, you can sell your businesses assets without any strings attached.
Benefits for the buyer
Your buyer’s benefits closely relate to your own benefits discussed above. Here’s why. The first benefit for a buyer is the simple fact they can pick and choose which asset they wish to purchase.
The fact that the buyer has the option of only buying the assets they desire is a major plus for them. Accordingly, they can buy as much or as little of your businesses assets as they want. Talk about being spoilt for choice!
The second reason your buyers may prefer an asset sale is the fact that your buyer will not have to undertake any sort of business liability. Therefore, the liabilities of the business will remain with the business owner. A buyer’s worst nightmare is buying a business with a bunch of hidden nasty liabilities. But, an asset sale has no such liabilities! Who wouldn’t want that?
Burning questions surrounding Asset Sales
Got some burning questions in relation to your business’s asset sale? We’ve got you covered. Below we answer some extremely important questions that’ll help get your asset sale up and running. Got another question for us? Get in touch with one of our lawyers today.
Do I need an Asset Sale Agreement?
If you’re selling anything in relation to your business, the best practice you can adopt is making sure you have a fully functioning contract or agreement in place.
So, if you wish to start up an asset sale for your business, you should have an agreement written up for each and every asset sold.
This will protect yourself, your business and your buyer. Furthermore, written agreements ensure everyone is on the same page in regards to the transaction, allowing for the purchase to proceed as smoothly as possible.
Therefore, it truly benefits all parties involved.
We have a few different agreements on offer for you to utilise in your asset sale.
If you’re selling tangible or physical assets, such as equipment, tools, furniture and other goods, a Sale of Goods Agreement is the way to go.
However, if you’re selling any form of intellectual property assets including business trademarks, copyrights or patents, it’s best to use an Assignment of Intellectual Property.
Is cash a part of my Asset Sale?
Generally, asset sales do not include cash. This is because an asset sale in business is usually a cash-free and debt-free transaction.
Are there any disadvantages I should be aware of?
The most glaring disadvantage in asset sales is time. This is because you may have a multitude of different buyers ready to purchase your businesses assets. Accordingly, each new purchaser must enter into a new contract or agreement with your company. However, this is unlike a business sale, where the owner sells off their entire business in one swift transaction.
So, be patient with your asset sale and be cautious when drafting up your agreements.
How can Lawpath help?
Sometimes, conducting an asset sale can be quite a task. However, our commercially driven lawyers can help you set up and manage your asset sale transactions. Also, to make your life a little easier, we can help you draft up the perfect agreements, keeping you and your business protected throughout the entire process.