Transaction Structuring

Buying or Selling a Business

Vetting your Business Sale and Purchase transactions under New Zealand's commercial frameworks requires detailed due diligence, contract drafting, and tax allocation audits.

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Purchase Price Allocation (PPA)

Under New Zealand tax rules (effective 2021), buyers and sellers of a business must agree on how the purchase price is allocated across asset classes.

Matching Returns Mandate: The IRD requires both parties to file matching PPA asset allocations (Goodwill, depreciable equipment, stock). If allocations mismatch, the IRD can overwrite allocations, triggering reassessments.

Choosing the Transaction Structure: Asset vs. Share Sale

The Asset Sale Structure

In an **Asset Sale**, the buyer purchases specific business assets (plant, machinery, brand, goodwill, stock) from the selling company. The corporate shell of the seller remains behind.

**The Advantage**: The buyer does not inherit the selling company's historical tax liabilities, bad debts, or employee disputes. This represents the lowest liability risk for the incoming buyer.

Standard NZ Structure

The Share Sale Structure

In a **Share Sale**, the buyer purchases the actual shares of the trading company. The company remains the owner of the assets, and you simply take over the company ownership.

**The Advantage**: Business operations continue without interrupting contracts, customer relationships, or supplier agreements. However, you inherit all historical corporate liabilities.

Corporate Shell Handovers

Transaction Structure Scorecard

Feature	Asset Sale (Recommended for Buyers)	Share Sale (Preferred by Sellers)
Liability Exposure	Low. Historical company debts remain with the vendor.	High. Buyer inherits all corporate history, tax debt, and liabilities.
Tax Depreciation	High. Buyer can re-depreciate tangibles from purchase values.	None. Depreciation remains locked into historical company schedules.
Employee Transfer	Seller terminates staff; buyer chooses who to offer new employment deeds to.	Automatic. Employment agreements continue uninterrupted.
Contract Assignment	Leases, franchise, and commercial contracts must be assigned to the buyer.	Automatic (unless "change of control" clauses trigger landlord rights).

Buyer's Due Diligence Audit Checklist

Vetting the business during the conditional due diligence period is essential to confirm valuation and identify operational risks. Vett these categories:

Audit Category	Due Diligence Key Verification Action	Target Verification Documents
Financial Audit	Audit balance sheets, tax returns, and cash flow reports for 3 years. Reconcile point-of-sale data.	IRD returns, POS logs, bank audits.
Legal Covenants	Verify active supplier agreements, check intellectual property trademarks, and review litigation history.	IPONZ records, supplier deeds.
Lease & Premises	Vett current ADLS lease clauses, check remaining tenure, and check landlord consent conditions.	ADLS lease deeds, variation documents.
Asset Inspections	Inspect all plant, machinery, vehicle, and IT assets for operation. Check PPSR registers for security charges.	PPSR search audits, asset lists.

Key Protective Clauses in the ADLS Contract

Restraint of Trade Limits

To protect the business's goodwill, the ADLS contract includes a **Restraint of Trade** clause. This prevents the seller (and its directors) from establishing or working for a competing business nearby.

**Reasonableness Covenants**: To be legally enforceable, the restraint must be reasonable in scope: a restraint radius (e.g. 5km for a cafe, 20km for a trade service) and duration (typically 2 to 3 years). Overly broad restraints will be struck down by courts.

**Stock-in-Trade Valuation**: The agreement defines a maximum stock value limit. On settlement eve, a stocktake is conducted—any damaged or slow-moving stock must be excluded from the final price calculation.

Contract Protection Checklist:

**Restraint Covenants**: Ensure director personal guarantees attach to restraints.
**Turnover Warranties**: Landlord checks on historical business sales.
**Redundancy Clauses**: Confirm the vendor settles all outstanding employee outgoings.
**Asset Ownership search**: Verify PPSR claims are cleared prior to settlement.

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Ensure your ADLS agreement contains robust due diligence clauses, manage PPA allocations, and assign commercial leases safely. Request a transaction quote today.

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Frequently Asked Questions

Goodwill is an intangible asset representing the business's reputation, brand, customer loyalty, and intellectual property. It is the value of the business beyond its physical assets and stock. Under PPA rules, goodwill is non-depreciable, making its valuation a key point of negotiation between buyers and sellers.

In a standard Asset Sale, the buyer is under no legal obligation to employ the existing staff, unless the agreement explicitly states otherwise. The seller must terminate all employees and pay out redundancy/annual leave outgoings on settlement day. The buyer can then choose to offer new employment agreements to selected staff. In a Share Sale, employment contracts continue automatically.

The Personal Property Securities Register (PPSR) is New Zealand's register of security interests in personal property (like machinery, vehicles, and stock). We run a PPSR search before settlement to check if bank loans or equipment leases are secured against the business's assets. We mandate that the vendor provides a clean release of all PPSR charges before settlement day.

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Contact our Remuera office to discuss your sale or purchase contract, title checks, or financing arrangements.