Buying the Business or Buying the Shares: Key Considerations

When it comes to buying a business, there are (usually) two ways of doing this being:

1. The purchaser buys the “business” from the vendor company; or

2. The purchaser buys the “shares” in the company that owns the business.

Each option has its own advantages and risks. Choosing the right approach depends on various factors.

Buying the Business

Buying the business normally involves purchasing the assets of the business from the vendor company, these may include equipment, inventory, goodwill, website and client list. On settlement these assets become the unencumbered property of the purchaser. The vendor remains responsible for the debts and liabilities of the business incurred up to settlement.

The agreement will also deal with the termination or continuation of staff arrangements, use of business names, web sites, telephone and communications, assignment of any leases and long-term supply contracts to ensure the continuation of the business with the new owner.

The main advantage of this option is that the purchaser starts with a clean slate with the business.

Buying the Shares

This option involves purchasing either some or all the shares of the company. While the ownership of the company (and potentially also management) will change, the ownership of the business continues and all the normal aspects of the business operation can largely be left in place, subject to any necessary consents from suppliers and landlords as required. For example, all employees remain employed by the same company.

A disadvantage with purchasing shares is that any liabilities remain with the company, for example tax. Disclosed liabilities are not so much a problem, it is the unknown ones which may relate to the product/service claims which may surface after the change of share ownership.

We can protect a purchaser from the unknown liabilities by including comprehensive warranties in the agreement. However, it is up to the purchaser to enforce these warranties should an issue arise, which can be costly and time consuming.

Typically, we see share purchases occurring when someone wishes to acquire only part of the company (for example family members entering the business) or a shareholder wishes to exit.

Whether you purchase the business or the shares, to ensure no unexpected surprises, it is important to have an agreement which deals with issues relevant to you.

 
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The information contained in this article is necessarily of a generalised nature and is correct as at June 2025. Specific advice should be sought in relation to any particular situation.

Article written by Aleisha Goldsmith