The vendor’s lawyer has just sent through a share purchase agreement. Everything seems fine, but nobody’s explained why you’d buy the shares rather than the assets. It’s worth a second look because buying shares in a business is a very different deal from buying what the business owns. The structure you choose can affect your tax position, the risks you take on, and how the business operates after the sale, so it’s worth understanding the differences before you sign.
Quick Summary
The choice between buying the shares or the assets of a business depends on who assumes the historical liabilities, how much tax you’ll pay, and how much depreciation you can claim. Most buyers prefer asset purchases, while most vendors prefer share sales.
Buying shares in a business means buying the company itself. That includes its tax history and any liabilities of the company, whether it’s known or not. Buying the assets means acquiring plant, stock, and goodwill through a new company, leaving the history behind.
Shares and assets give you two fundamentally different deals
A company is a separate legal entity. So buying its shares means buying everything it has ever done. That’s why most SME sales in New Zealand are structured as asset and goodwill sales. In a share deal, the buyer inherits the company’s full history: contracts, staff, tax position, and historical liabilities.
In an asset deal, you buy specific assets out of the company and start with a clean slate.
| Share purchase | Asset purchase | |
|---|---|---|
| What you buy | The company itself, with all its assets and liabilities | Specific assets: plant, stock, goodwill, and intellectual property |
| Liabilities | Historical liabilities come with the company | They stay behind with the vendor |
| Contracts and staff | Carry on, though change-of-control clauses can mean third-party consents | New agreements with staff, suppliers, and the landlord |
| Tax for you | No depreciation reset; you inherit the company’s tax position | Depreciation restarts on what you paid |
| Tax for the vendor | Gains on selling the shares are usually tax-free | Depreciation recovered on the plant is taxable income |
| Set-up work | Lighter on paper, heavier on due diligence | More admin, far less risk |
Buyers and sellers want opposite things from the same deal, which is why the structure gets negotiated, never assumed.
The tax treatment is where the money really moves
The tax implications of a share sale vs asset sale in NZ can be very different for buyers and vendors, which is why the structure of the deal matters. In an asset sale, you and the vendor allocate the purchase price across the assets. Each class has its own tax treatment. Stock is taxable income for the vendor and deductible for you.
If a plant sells for more than its book value, the vendor pays back some of the tax they saved through depreciation. You claim depreciation on the full price you paid. Generally, neither side pays tax on goodwill.
Inland Revenue has outlined the rules for setting up an asset sale. Both parties must now adopt the same allocation. Formal notification steps apply to deals of $1 million or more. If both parties are GST registered and the business sells as a going concern, no GST gets added to the price.
A share sale can look simpler. There’s one share price and no allocation. The vendor’s gain is usually tax-free, because NZ has no general capital gains tax. The vendor then doesn’t have to wind up their company after the sale.
In practice, a share sale is rarely worth doing unless you are selling to family or it’s an internal sale (i.e. to management). For a buyer, there’s no depreciation reset, and any undisclosed liability travels with the company. It adds a lot of complication to the settlement process as you have to work out the exact value of debtors, creditors and cash balances at the settlement date – so there can be a financial wash-up required after settlement.
Inland Revenue’s guidance on buying or selling business assets or shares is clear. The tax implications differ for every asset class. Be sure to get the right price structure before you agree to it.
Here’s how the numbers play out in a local deal
Picture a simplified Western Bay of Plenty deal. A Te Puke buyer, for example, agrees on $850,000 for an orchard services business broken down as follows:
- $300,000 of plant
- $100,000 of stock
- $450,000 of goodwill
As an asset purchase, the buyer can claim future depreciation on the full $300,000 of plant. At the 28% company tax rate, those future deductions are worth up to $84,000 in tax savings.
Bought as shares instead, the plant stays at its old book value of $120,000, and most of that benefit disappears. The vendor wanted a share sale because selling the shares would’ve been largely tax-free. The deal settles as an asset purchase, with the purchase price adjusted to suit.
Every deal is different, so treat this as an example. For more targeted advice, give us a call or drop us a message. Our team will be happy to get in touch with you right away.
Your decision rests on risk, tax, and continuity
For most buyers, an asset purchase is the safer call, and it’s what we usually recommend. The share purchase vs asset purchase question touches on three important things.
- Risk: How confident are you in the company’s history, and how strong are the warranties and indemnities on offer?
- Tax: Which structure leaves you better off once you price in depreciation and the vendor’s position?
- Continuity: Do key contracts, licences, or supplier relationships make continuity of business operations genuinely valuable?
Buying shares in a company can make sense when you already know it from the inside out. Think family succession, or a staged buy-in from your employer, where you’re already familiar with all its details. Whether you’re buying or selling, due diligence matters under both structures, and so do well-drafted purchase agreements.
Have your own adviser review the share purchase agreement or asset purchase agreement before signing. Our FAQ on buying a business covers how buyers and vendors agree on goodwill and asset values in practice.
Frequently asked questions
Is it better to buy assets or shares?
For most buyers, it’s the assets. An asset purchase leaves historical liabilities with the vendor and resets depreciation on what you paid. Shares mainly suit family successions and staged buy-ins, where you already know the company’s history.
What are the disadvantages of an asset sale?
More set-up work. You’ll need a new company, new employment agreements, and consents from the landlord and key suppliers. The vendor also pays tax on depreciation recovered, which can affect the price you negotiate. Practically many of these will apply also in a share sale – as many agreements do have to be updated when there’s a shareholding change.
What happens when you buy shares in a business?
You take over ownership of the company itself. Contracts, staff, and licences usually carry on, but so do all the company’s obligations, disclosed or not. Strong warranties and thorough due diligence become essential.
Can you buy shares in a business?
Yes. In a private company, you buy shares directly from the existing shareholders under a share purchase agreement. That’s a different exercise from trading listed shares on the NZX through a broker.
Is it a good idea to buy shares in a company?
It depends on what you mean. As a passive investment, that’s a question for a financial adviser. As a way to buy a business, it suits buyers who know the company’s history and have priced the risk.
Should you buy the shares or the assets of a business in NZ?
For most buyers, an asset purchase is the safer option because you can choose which assets and liabilities you take on, while the company’s historical liabilities generally stay with the vendor. However, the right choice depends on the business, its contracts, tax position, and how much risk you’re prepared to take on. If you’re weighing up an asset sale vs share sale in NZ, it’s worth getting advice before you sign the purchase agreement.
Get the structure right before you sign anything.
The structure you choose shapes your risk, your tax, and your first years of ownership. Getting it right now is far cheaper than unwinding later.
If a share purchase agreement has landed and you’re unsure, we’ll run the numbers on both structures in plain English.
Our free eBook, Better Business Buying, walks you through the whole purchase step by step. Download it from our buying a business page. No pressure, just clarity before you commit.
References
Inland Revenue. (n.d.). Buying or selling business assets or shares. https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/buying-or-selling-a-business/buying-or-selling-business-assets-or-shares
Inland Revenue. (n.d.). Setting up an asset sale. https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/buying-or-selling-a-business/setting-up-an-asset-sale
