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As a successful New Zealand business owner, others may be interested in purchasing your business. One option you have when selling your business is to sell all of its assets. Assets are items or property related to your business and required to operate successfully. This might include your business’ equipment, goodwill, stock and materials. This article explains some key considerations you should make when undertaking an asset sale of your New Zealand business. 

What is an Asset Sale?

An asset sale is when a buyer agrees to purchase some of your business assets and liabilities. If you operate your business through a company, an asset sale will not necessarily change your company ownership. Instead, an asset sale will effectively mean that your company no longer operates the business associated with those assets and liabilities.

For example, suppose you want to sell your business which leases heavy machinery via an asset sale. In this case, the buyer will own those assets and be responsible for maintaining the machinery. Consequently, you will remain the company owner, but your company will no longer operate the machinery business the buyer has bought.  

The assets you sell will likely be tangible and intangible. Some examples of tangible assets include machinery, land and plants. On the other hand, examples of intangible assets include:

  • trade marks you use to market your business;
  • any patents that protect your business’ machinery; and 
  • licences you have to use land. 

In saying this, any buyer will want to ensure that your business’ assets are worth purchasing before they go ahead with the sale. Consequently, buyers want to conduct due diligence before purchasing your business’ assets. 

Consider Due Diligence

Before completing a business asset purchase, the buyer will likely want to conduct due diligence on your business. As a result, you should be prepared to respond to a buyer’s request for information. To use the same heavy machinery example as above, a buyer might want you to conduct repairs on your machinery and ensure that you document any long-term leasing arrangements. 

Documents you may want to prepare include:

  • trade mark registration papers;
  • patents;
  • licences;
  • leases;
  • ownership papers for equipment and machinery; and
  • employee agreements.

By preparing these documents earlier rather than later, you can ensure the sale process is efficient and completed in good faith. 

Term Sheet

If a buyer is interested in your business, they may give you a term sheet that sets out the key commercial terms of their offer. You should check these proposed terms and discuss them with your lawyer. While a term sheet is often non-binding, it can sometimes be hard to negotiate away from these terms once both parties sign the term sheet.  

Some of the key terms a buyer might contain in a term sheet include the:

  • price of the assets;
  • list of assets and liabilities included in the sale;
  • anticipated timeline for negotiations and completion of the sale;
  • buyer exclusivity clause;
  • warranties and guarantees; and
  • right to terminate.

Asset Purchase Agreement 

An asset purchase agreement (APA) is the formal document that should reflect the agreed commercial terms set out in your term sheet. Sometimes, parties progress to documenting arrangements in an APA without first agreeing on a term sheet. This can save time and cost when both parties are aligned regarding the terms of the sale. 

It is important to note that this document is legally binding on both parties, making it crucial that you are happy with the terms outlined in the APA. Consequently, you should consult your lawyer to draft and review your APA.

An APA will typically include the:

  • parties’ names and details;
  • purchase price and any specific payment mechanics;
  • list (or description) of assets the buyer will purchase; list (or description) of liabilities the buyer will assume;
  • vendor warranties;
  • settlement date; and
  • default and termination provisions.

Tax on Asset Sales

Your tax obligations will differ depending on the type of assets you sell.  Therefore, you may want to speak to a tax professional who can ensure that your assets are taxed correctly during the sale. You can also visit the Inland Revenue Department’s website to learn more. 

For depreciable and intangible assets, you may be able to claim depreciation depending on the circumstances. If you sell these assets above their book value, you need to include the excess depreciation deductions you claimed previously as income in your tax return. 

Alternatively, tax implications on goodwill will depend on whether it is: 

  • personal or business goodwill; or 
  • local or site goodwill. 

Personal or business goodwill includes your company’s reputation, client base, and trade marks which are usually non-taxable. On the other hand, local goodwill can be taxable when related to your company’s premises.

If you are selling trading stock, then this will be taxable. For tax purposes, if you sell trading stock with other assets, you must allocate the total sale price between stock and other assets to reflect their respective market values. 

Is an Asset Sale Right for Your Business?

The alternative to a business asset sale is to sell the shares in your company to a third-party buyer. A share sale is more straightforward given it involves a simple transfer of shares from a seller to a buyer. Consequently, all assets and liabilities sitting in the company automatically transfer to the buyer. 

On the other hand,  an asset sale often involves a buyer ‘picking and choosing’ the assets and liabilities they wish to purchase. As a result, a share sale often includes a more extensive due diligence process, and a buyer seeks a more comprehensive list of vendor warranties compared to a business asset sale.

Before structuring your sale as a share or asset sale, we suggest you talk to an experienced lawyer and accountant to help determine which sale method is more suitable for your business.

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Key Takeaways

An asset sale includes selling your business’ assets and liabilities. Before undertaking a business asset sale, you should anticipate a buyer’s request for key documents as part of their due diligence. If you need help with a business sale, you can contact our experienced business lawyers to assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 0800 005 570 or visit our membership page

Frequently Asked Questions

What is a business asset sale?

A business asset sale is where you sell your business’ assets (both tangible and intangible) and liabilities. This is different from a share sale where you sell the shares in the company which operates your business.

What is an asset purchase agreement?

An asset purchase agreement will formalise the terms of the business asset sale. This legally binding document includes key matters such as price, specific assets and liabilities being sold, warranties given by the vendor in respect of the business assets and settlement day mechanics.


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