Contract terms matter.
A business can be sold either on an enterprise or equity basis.
An equity sale is associated with far greater risk than an
enterprise sale, as acquiring the shares increases risk around
contingent claims, particularly the Australian Taxation Office
(ATO), employee and consumer claims that may not be apparent at the
time of the purchase. Buyers in such cases seek to mitigate risk by
undertaking extensive due diligence and obtaining warranties from
the vendor.
Therefore, it's no great surprise that most business sales
are of the assets only (usually goodwill, intellectual property
(IP), plant and equipment), and that the buyer will either
establish a new entity (NewCO) or merge the assets into an existing
trading entity. This approach means the buyer is not exposed to the
vendor entity's debts (actual or contingent).
