What is a sale of assets agreement?
Is a sale of assets agreement legally binding in South Africa?
“A company may not dispose of all or the greater part of its assets or undertaking unless— (a) the disposal has been approved by a special resolution of the shareholders, in accordance with section 115; and (b) the company has satisfied all other requirements set out in section 115 … "all or the greater part of the assets or undertaking", when used in respect of a company, means … in the case of the company’s assets, more than 50% of its gross assets fairly valued, irrespective of its liabilities … A shareholder may demand that the company pay the shareholder the fair value for all of the shares of the company held by that person [s 164].”
“If a trader transfers in terms of a contract any business belonging to him, or the goodwill of such business, or any goods or property forming part thereof (except in the ordinary course of that business or for securing the payment of a debt), and such trader has not published a notice of such intended transfer in the Gazette, and in two issues of an Afrikaans and two issues of an English newspaper circulating in the district in which that business is carried on, within a period not less than thirty days and not more than sixty days before the date of such transfer, the said transfer shall be void as against his creditors for a period of six months after such transfer, and shall be void against the trustee of his estate, if his estate is sequestrated at any time within the said period.”
“If a transfer of a business takes place, unless otherwise agreed in terms of subsection (6)— (a) the new employer is automatically substituted in the place of the old employer in respect of all contracts of employment in existence immediately before the date of transfer; (b) all the rights and obligations between the old employer and an employee at the time of the transfer continue in force as if they had been rights and obligations between the new employer and the employee.”
“Whether that has occurred is a matter of fact which must be determined objectively in the light of the circumstances of each transaction. … By operation of law, the new employer is substituted in the place of the old employer in respect of all contracts of employment.”
“A supply of goods … shall, subject to compliance with subsection (3) of this section, be charged with tax at the rate of zero per cent where … (e) the supply is to a registered vendor of an enterprise as a going concern or of a part of an enterprise where that part is capable of separate operation.”
When you need a Sale of Assets
- You are buying or selling a business (or a clearly separable division) and want to take only its productive assets — equipment, stock, contracts, goodwill, IP and lease — while leaving the seller’s company, its tax history and its undisclosed liabilities behind, which an asset sale achieves and a share sale does not.
- The seller is a company disposing of all or the greater part of its assets or undertaking, so the deal needs a shareholders’ special resolution under section 112 of the Companies Act and must accommodate the appraisal rights of any dissenting shareholders under section 164.
- The business is sold as a going concern and you want the VAT to be zero-rated under section 11(1)(e) of the VAT Act — which requires both parties to be registered vendors and the going-concern terms to be recorded in writing in the agreement.
- Staff move with the business, so section 197 of the Labour Relations Act automatically transfers the seller’s employees to the buyer on their existing terms, and the agreement must allocate accrued leave, bonuses, pension and severance liabilities between seller and buyer.
- You need the section 34 Insolvency Act creditor notice published correctly before transfer, so the buyer is not exposed to the sale being declared void against the seller’s creditors for six months.
- You want a clean, plain-English contract that lists exactly which assets and liabilities are in and out, allocates the price across them for tax, and sequences the transfer of property, contracts, licences and employees so nothing falls through the cracks at completion.
What a Sale of Assets should contain
The assets sold and the assets excluded
The heart of an asset sale: a precise, itemised schedule of what is being bought — fixed assets and equipment, stock, debtors, intellectual property, the lease, transferable licences and goodwill — and an equally clear list of what is excluded (often cash, certain debtors, and named contracts). Anything not listed as sold stays with the seller, so vague descriptions are the most common and costly drafting failure.
Liabilities assumed and liabilities excluded
Unlike a share sale, the buyer takes only the liabilities it expressly agrees to assume. The agreement must state which obligations transfer (for example, deposits, warranties or specified trade creditors) and confirm that all other liabilities — tax, litigation, undisclosed debt — remain the seller’s, ideally backed by an indemnity so the buyer is reimbursed if an unassumed liability lands on the business.
Purchase price and price allocation
State the total price, the payment terms (lump sum, instalments, escrow or deferred or earn-out), and — importantly for tax — how the price is allocated across the assets. Allocation drives the seller’s capital gains, recoupment and the buyer’s future tax base, and a clean allocation is needed for the VAT and any transfer-duty treatment, so it should be agreed rather than left for SARS to attribute.
Conditions precedent (suspensive conditions)
List what must happen before completion: the seller’s shareholders’ special resolution under section 112 where required, landlord consent to cede the lease, key customer and supplier consents to transfer their contracts, financier or bank consents, Competition Commission merger approval above the thresholds, and satisfactory due diligence. The deal is signed but only becomes unconditional once these are met or waived by a long-stop date.
Transfer mechanics for each asset class
Different assets transfer differently and the agreement must sequence them: movables pass on delivery, debtors and contractual rights pass by cession and obligations by delegation (needing the counterparty’s consent), immovable property transfers only on registration in the Deeds Office, registered IP needs assignment and recordal, and employees transfer by operation of law under section 197. Completion should hand over registers, keys, passwords, certificates and signed cession or transfer documents.
Employees and the section 197 transfer
Where the business moves as a going concern, section 197 of the Labour Relations Act automatically substitutes the buyer as employer of the seller’s staff on their existing terms and unbroken service. The clause should record this, allocate accrued leave, bonus, pension and any retrenchment liability between the parties (a valuation date and adjustment), and deal with the section 197(6) agreement and any consultation, because the parties cannot simply contract out of the transfer.
Going-concern and VAT zero-rating clause
To secure VAT zero-rating under section 11(1)(e) of the VAT Act, the agreement must record in writing that the enterprise (or a separable part) is sold as a going concern, that both parties are registered vendors, that it will be an income-earning activity on the transfer date, that the assets necessary to carry it on are included, and that the price includes VAT at zero rate — with a fallback that standard-rated VAT applies if the going-concern requirements are not met.
Warranties, restraint of trade and the section 34 notice
The seller warrants title to and condition of the assets, that the accounts and disclosed contracts are accurate, and that there are no undisclosed liabilities affecting the assets sold. A buyer paying for goodwill usually requires a reasonable restraint of trade. The clause should also provide for publication of the section 34 Insolvency Act creditor notice and place the risk of any pre-transfer creditor claim on the seller.
Sale of assets (asset sale) vs sale of shares (share sale) in South Africa
| Feature | Sale of assets (asset sale) | Sale of shares (share sale) |
|---|---|---|
| What the buyer acquires | Selected assets of the business and only the liabilities it agrees to assume | The company itself — all its assets and all its liabilities come with it |
| Hidden liabilities | Stay with the seller’s company unless specifically taken over | Inherited in full unless excluded by warranty/indemnity |
| Continuity of contracts/licences | Each contract, lease and licence often needs consent or re-application | Contracts, licences and tax history usually continue unchanged |
| Company-law approval | Seller’s special resolution under s 112 if all/greater part of assets disposed | No s 112 resolution (the company is not disposing of its assets) |
| Employees | Transfer automatically under s 197 LRA if sold as a going concern | Stay employed by the same company — no s 197 transfer |
| Tax on transfer | VAT (zero-rated if a going concern under s 11(1)(e)); transfer duty on any land | Securities transfer tax at 0,25% on the share transfer |
| Creditor protection | Section 34 Insolvency Act creditor notice; void vs creditors if skipped | No s 34 notice (no transfer of the business itself) |
Common South African pitfalls
- Skipping the section 112 special resolution. Where the seller is a company disposing of all or the greater part (more than half its gross assets, fairly valued) of its assets or undertaking, the sale needs a shareholders’ special resolution adopted at a meeting under sections 112 and 115 of the Companies Act. A disposal concluded without it is not binding on the company and can be set aside, and dissenting shareholders may exercise appraisal rights under section 164.
- Failing to publish the section 34 Insolvency Act creditor notice. A trader who transfers a business or its goods outside the ordinary course must advertise the intended transfer in the Government Gazette and newspapers 30–60 days beforehand. Skip it and the transfer is void against the seller’s creditors for six months — they can claim the assets even though the buyer has paid for them — so the notice should be a condition of completion.
- Mishandling employees under section 197. If the business moves as a going concern, the seller’s employees transfer to the buyer automatically by operation of law (NEHAWU v University of Cape Town [2002] ZACC 27) on their existing terms and unbroken service. Parties cannot quietly contract out of this; failing to budget for the staff, accrued leave and pension liabilities, or dismissing employees to defeat the transfer, leads to automatically unfair dismissal claims.
- Losing the VAT going-concern zero-rating. The sale of an enterprise can be zero-rated under section 11(1)(e) of the VAT Act only if both parties are registered vendors and the going-concern terms — income-earning activity on transfer, all necessary assets included, price including VAT at zero rate — are agreed in writing. If the requirements are not met, SARS applies VAT at the standard rate, an unexpected cash cost that should be addressed by a fallback clause.
- Describing the assets too loosely. Because an asset sale transfers only what is listed, a vague schedule means key items — a licence, a domain name, a customer list, a piece of plant — are unintentionally left behind with the seller or fall outside the sale. Each asset class also transfers in its own way (delivery, cession, Deeds Office registration, IP recordal), so a single "all assets" clause without the underlying transfer steps leaves the buyer without good title.
- Forgetting contract and lease consents. The buyer cannot simply step into the seller’s contracts: rights are ceded but obligations can only be delegated with the counterparty’s consent, and most commercial leases prohibit assignment without the landlord’s written consent. Closing before securing key customer, supplier and landlord consents can leave the buyer with a business stripped of its most valuable contracts.
Frequently asked questions
What is the difference between a sale of assets and a sale of shares in South Africa?
In a sale of assets you buy specific assets of the business — equipment, stock, contracts, goodwill — and only the liabilities you agree to assume, leaving the seller’s company and its hidden debts behind. In a sale of shares you buy the company itself, so all its assets and liabilities transfer with the shares because nothing changes except ownership. Asset sales let a buyer limit exposure to unknown liabilities; share sales favour continuity of contracts and licences.
Does a company need shareholder approval to sell its assets?
Yes, if it is disposing of all or the greater part of its assets or undertaking. Section 112 of the Companies Act 71 of 2008 requires a special resolution (75% support) adopted at a shareholders’ meeting under section 115, and "the greater part" means more than half the company’s gross assets, fairly valued. A sale of less than that does not need a special resolution, but a sale above the threshold concluded without one is not binding on the company.
Do employees transfer when I buy a business in an asset sale?
Yes, if the business is sold as a going concern. Section 197 of the Labour Relations Act automatically substitutes the buyer as employer of the seller’s staff on their existing terms and unbroken service, by operation of law — the Constitutional Court confirmed in NEHAWU v University of Cape Town [2002] ZACC 27 that this happens whether or not the parties agree to it. The agreement should allocate accrued leave, bonus and pension liabilities between seller and buyer.
Is VAT payable on the sale of a business, and can it be zero-rated?
A business sold as a going concern can be zero-rated for VAT under section 11(1)(e) of the VAT Act, so no 15% VAT is charged. To qualify, both parties must be registered VAT vendors and the agreement must record in writing that the enterprise is sold as a going concern, that it will be an income-earning activity on transfer, that the necessary assets are included, and that the price includes VAT at the zero rate. Get the wording wrong and SARS charges standard-rated VAT.
What is the section 34 notice and why does it matter?
Section 34 of the Insolvency Act 24 of 1936 requires a trader selling a business (or its goods) outside the ordinary course to publish a notice of the intended transfer in the Government Gazette and in newspapers between 30 and 60 days before transfer. The notice lets creditors claim before the business changes hands. If it is skipped, the transfer is void against the seller’s creditors for six months, so the buyer should insist it is published as a condition of completion.
Does a sale of assets agreement have to be in writing?
No general statute requires it to be in writing to be valid — it is an ordinary contract of sale, binding once the parties agree on the assets and the price. In practice every asset sale is detailed and written, because the asset schedule, liability allocation, conditions precedent and transfer mechanics cannot work otherwise. One exception is firm: if the sale includes land, that part must comply with the Alienation of Land Act and be in a signed written deed of alienation.
Do I need Competition Commission approval to buy a business or its assets?
Only if the transaction is a notifiable merger. Acquiring control over the whole or part of a business (including by asset sale) can be a merger under the Competition Act. From 1 May 2026, an intermediate merger must be notified where the combined turnover or assets equal or exceed R1 billion and the target firm’s figure is at least R200 million; a large merger applies at R9.5 billion combined and R280 million for the target. Below these thresholds no filing is needed, but a notifiable deal may not close before approval.
How are the assets actually transferred to the buyer at completion?
Each asset class transfers in its own way and the agreement sequences them: ownership of movables (equipment, stock) passes on delivery; debtors and contractual rights pass by cession, and obligations by delegation with the counterparty’s consent; immovable property transfers only on registration in the Deeds Office; registered intellectual property needs a written assignment and recordal; and employees transfer by operation of law under section 197. Completion involves handing over signed cession and transfer documents, registers, certificates and access.
Sources & authority
- Companies Act 71 of 2008, ss 112, 115 & 164 (disposal of all or greater part of assets or undertaking; special resolution; appraisal rights)
- Insolvency Act 24 of 1936, s 34 (voidable transfer of a business without creditor notice)
- Labour Relations Act 66 of 1995, s 197 (transfer of a business as a going concern)
- NEHAWU v University of Cape Town and Others (CCT2/02) [2002] ZACC 27; 2003 (3) SA 1 (CC)
- Value-Added Tax Act 89 of 1991, s 11(1)(e) (zero-rating of a going concern)
- Competition Act 89 of 1998 (merger control; intermediate and large merger notification)
This guide is general information, not legal advice. It reflects the law as at June 2026.