A sale of shares is generally logistically simpler than a sale of assets. The sale of assets requires an agreement to deal with each class of assets and liabilities. In an asset sale, third-party consent may be necessary for the assignment or novation of commercial contracts. For example, business employees will need to enter into new employment contracts with the purchaser.

A share sale is generally considered riskier for a purchaser than an asset sale. Purchase of shares will acquire the company (including the company’s assets and liabilities). In contrast, an asset sale will allow the purchaser to purchase specific assets and discard weaknesses they don’t wish to receive. The Exit By Design team works with you to understand your objectives and help navigate the legal aspects of this decision.

It is common practice in Australia for all parties to enter a before-a-sale agreement. All parties may enter preliminary contracts (such as Memorandum of Understanding, Heads of Agreement, Terms Sheet, or Letter of Intent) that set out the key commercial terms of the sale agreement and procedures and protocols for the transaction. These agreements may include due diligence rights, transaction schedules and restrictions on the right to negotiate with third parties.  

The Exit By Design legal team can provide legal advice before entering any preliminary agreement, as incomplete contracts can be binding and may cause problems for the rest of the transaction. Additionally, If not properly drafted, a perceived binding initial agreement may not be binding.

Non-Disclosure Agreements (NDAs) are often entered into in the early stages of a transaction. They are essential for protecting sensitive information exchanges between the negotiating parties.

One of the most complex, time-consuming, and critical legal issues of exits is Legal and due diligence. Legal, due diligence usually involves the potential purchaser reviewing the information provided by your business (such as commercial contracts) and conducting searches of publicly available information to assess risks or problems involved in purchasing your business. The results of the due diligence investigations often have a bearing on the purchase price and the sale agreement terms, such as warranties and indemnities. Much of the work for due diligence can be handled by the Exit By Design team in advance, allowing you to make decisions and take actions to head off potential ‘deal breakers in a negotiation.

The purchase price for the business will be determined by the value of the shares or assets and the other terms and conditions of the sale agreement, such as warranties. You and the purchaser will need to consider whether the purchase price will be fixed or whether a formula will be inserted to adjust the purchase price for changes in matters such as net assets and working capital. Both parties may wish to structure the purchase price to include a deposit on signing, retention amounts, or earn-out payments.

Consideration should be given to whether completion of the sale agreement needs to be conditional on certain conditions being met. Common conditions include obtaining approval from regulatory bodies like the Foreign Investment Review Board or the ACCC and receiving consent from counterparties to commercial contracts.

A purchaser may also ask for warranties to be included in the sale agreement to protect a purchaser against unknown liabilities. Indemnities should also be included to protect against known liabilities. The Exit By Design team can advise you on the best course of action and the consequences of having warranties in a sale agreement.

To protect their investment, a purchaser often includes a non-compete clause in a sale agreement. If you intend to retire or focus on non-competitive activities, this is not a problem; however, like most legal issues, the devil is in the detail. If such an inclusion is required, the Exit By Design team can help you navigate this process and advise you on what the impacts may include.

With over 20 years of experience advising clients in various contexts, including litigation, management, international tax consulting and commercial and corporate advisory areas of law. Our ‘go-to’ exit legal expert has broad local and international experience that has enabled the development of expertise in commercial and corporate issues in various contexts and industries.

Working with clients and their businesses strategically and proactively provides clients with a unique opportunity to engage with this trusted expert as an integral part of their advisory team. They focus on achieving commercial outcomes based on sound and reliable advice and building and maintaining genuine and trusted long-term client relationships. They are unwavering in her commitment to providing unparalleled client service.