Selling Company Assets To Yourself Before A Sale: Legal Risks In NZ

If you’re preparing to sell your business, it’s normal to start “tidying things up” before you go to market.

One common idea we hear from small business owners is: “Can I just buy the company’s assets off the company, so I keep them, and then sell the business without them?”

This is often described as selling company assets to yourself before a business sale. Sometimes it’s completely legitimate. But it’s also one of the fastest ways to create red flags for buyers (and their lawyers), trigger director-duty issues, or accidentally create tax and insolvency problems.

Below, we’ll walk through why business owners consider it, the key legal risks for New Zealand directors and shareholders, and the practical steps you can take to do it properly (or avoid it altogether).

Why Do Business Owners Sell Company Assets To Themselves Before A Business Sale?

There are plenty of practical reasons you might want to “pull out” certain assets before you sell.

Common Examples

• The work vehicle you personally use and don’t want included in the sale.
• Specialised tools or equipment you paid for (or feel you paid for) over the years.
• Intellectual property you want to keep for a future venture (e.g. a brand name, designs, software, formulas).
• The premises (if the company owns property) you’d rather hold personally and lease back to the buyer.
• “Non-core” assets like an investment portfolio, side business, or spare machinery not used day-to-day.

Why It Appeals (But Can Backfire)

From your perspective, it can feel simple: you “pay” the company for the asset, then the buyer gets the core business, and everyone is happy.

The issue is that, legally, a company is its own person. Even if you own 100% of the shares, you can’t treat company property as personal property. That’s where director duties, shareholder approvals, solvency, and sale-contract disclosures all come into play.

If you’re unsure whether you’re selling the business as shares or as assets, it’s worth getting clear early - the risks and paperwork can be quite different depending on the deal structure (and the buyer’s expectations).

What Does NZ Law Require When You Transfer Company Assets To Yourself?

When you’re a director (or shadow director) and you arrange an asset transfer from the company to yourself, you’re effectively doing a “related party” transaction. That doesn’t automatically make it unlawful - but it does mean you need to be extra careful.

Director Duties Under The Companies Act 1993

Directors in New Zealand have duties under the Companies Act 1993, including duties to:

• Act in good faith and in the best interests of the company (not just in your own interests).
• Exercise powers for a proper purpose (not to strip value before a sale).
• Avoid reckless trading and protect creditors if the company is (or may be) unable to pay its debts.
• Not agree to obligations the company can’t perform (for example, selling assets needed to run the business you’re selling).

These duties matter even more when a buyer is about to rely on the company’s financial position, asset register, and goodwill. If you breach these duties, you may face claims that don’t disappear just because the business sale completes.

It’s also worth remembering that director issues can become personal issues - directors can face real exposure in certain situations. If you want a deeper overview of director risk, Personal Liability Company Director is a helpful starting point.

Conflicts Of Interest And Disclosure

When you’re on both sides of the deal (company sells, you buy), you have an obvious conflict.

In practice, managing that conflict usually involves:

• formal disclosure of your interest (and ensuring it’s recorded in the company’s interests register, where required)
• proper decision-making processes (board minutes / resolutions)
• evidence the transaction is on commercial terms

This is closely connected to what people often describe as fiduciary duty - in plain terms, you can’t use your position to benefit yourself at the company’s expense.

Company Constitution And Shareholder Approval

Your Company Constitution (if you have one) may include additional approval requirements for major transactions, conflicts, or sales of significant assets.

Even without a constitution, you may need shareholder approval if what you’re doing is a “major transaction” under the Companies Act 1993 (in general terms, transactions involving more than half the value of the company’s assets). This is particularly important where there are multiple shareholders - one shareholder “pulling out” assets can quickly become a dispute.

The Biggest Legal Risks When Selling Company Assets To Yourself Before A Business Sale

When buyers do due diligence, pre-sale asset transfers to owners are one of the first places they look for problems.

Here are the most common issues we see.

1. Undervalue Transactions (And Claims You “Stripped” Value)

If you buy an asset for less than market value - or there’s no clear evidence of value - it can look like you’ve taken value out of the company right before selling it.

This can lead to:

• buyer distrust and a reduced offer price
• requests for price adjustments or special warranties/indemnities
• disputes with other shareholders (if they believe you benefited personally)
• director duty allegations (especially if creditors are affected)

Even if you believe the price is fair, you’ll usually want an independent valuation or at least a well-documented basis for how the price was set.

2. Insolvency And Creditor Risk (Including “Clawback” Issues)

If the company is struggling financially, transferring assets out to an owner can be a major red flag.

Where a company later fails, liquidators can investigate transactions that occurred before liquidation and may seek recovery in certain situations. In New Zealand, “voidable transaction” rules can apply (including to certain related-party dealings and transactions entered into while the company was unable to pay its due debts). Even if your company is healthy today, you should still treat solvency as a key checkpoint before any owner-related asset transfer.

As a director, you also need to think about whether removing an asset harms the company’s ability to pay debts as they fall due, and whether the transfer is effectively a distribution to a shareholder that needs to satisfy the Companies Act solvency requirements.

3. Buyer Allegations Of Misleading Conduct Or Poor Disclosure

Business sales commonly involve a lot of statements (formal and informal) about what the buyer is getting: revenue, assets, contracts, goodwill, plant and equipment, and “everything you need to run the business”.

If you transfer out an asset and the buyer later says they were led to believe it was included (or necessary to operate), you can end up with a dispute about disclosure and reliance.

This risk isn’t just theoretical - What Is Misrepresentation? is a useful concept to understand here. In a sale context, misrepresentation issues often arise when what was promised (or implied) doesn’t match what was delivered.

4. You Accidentally Break The Business You’re Trying To Sell

Some assets are “core”, even if they don’t feel core.

For example:

• the phone number attached to a handset you want to keep
• a key domain name registered personally (or transferred out) that customers use
• a vehicle used for deliveries that makes service levels possible
• specialised equipment tied to your health and safety system or compliance

If removing an asset affects operations, a buyer may lower their offer or insist on a condition that you force the asset back into the deal (sometimes at the last minute, when you have the least negotiating power).

5. Tax, GST, And Accounting Problems

Whenever assets move between a company and an owner, the numbers matter.

Depending on what the asset is and how it’s transferred, you may need to consider:

• GST (is GST charged? does it qualify as part of a going concern sale? is the buyer GST-registered?)
• income tax outcomes
• depreciation recovery (if you sell depreciated assets above their book value)
• fringe benefit tax issues (for certain benefits or use of assets)
• shareholder current account implications (was it truly “paid for” or just journal entries?)

Your accountant should be involved early. From a legal perspective, you also want the paper trail to match the accounting treatment (and to match what you disclose to the buyer). This section is general information only and isn’t tax advice.

How Can You Do It Properly (If It Really Makes Sense)?

Sometimes, selling company assets to yourself before a business sale is genuinely the best option - but it needs to be done carefully and documented properly.

Step 1: Be Clear On The Deal Type (Share Sale vs Asset Sale)

This step is foundational because it changes what the buyer expects.

• Share sale: the buyer purchases the shares in the company, meaning they effectively take over the company (including its assets and liabilities).
• Asset sale: the buyer purchases specific business assets (and sometimes takes on specified liabilities) from the company.

If you’re in a share sale, transferring assets out beforehand changes what sits inside the company the buyer is buying. That’s fine if disclosed and agreed - but it must be consistent with the sale documents and the price.

If you’re in an asset sale, there’s usually already a schedule of assets being sold, and “excluded assets” can be clearly listed (often a cleaner solution than transferring ownership early).

Where the sale is an asset deal, having a properly drafted Asset Sale Agreement is one of the best ways to avoid misunderstandings about what is and isn’t included.

Step 2: Identify The Asset Properly (And Check Ownership)

Before you transfer anything, confirm the company actually owns it.

This sounds obvious, but ownership can be messy in small businesses - especially with:

• vehicles financed personally but used by the company
• tools and equipment bought across multiple accounts
• IP that was created personally but used in the business
• assets that are leased rather than owned

If the asset is actually personally owned already, you may not need a transfer - but you do need to ensure the business sale documents reflect reality (and that the buyer has the right to use anything essential to the business).

Step 3: Get A Fair Value (And Keep Evidence)

To reduce risk, you’ll want evidence that the price is commercially justifiable.

Depending on the asset, this could include:

• a valuation report
• market listings for comparable items
• an accountant’s view on book value vs market value
• a written rationale kept with the company records

This helps protect you if a buyer queries it during due diligence, or if another shareholder later challenges the transaction.

Step 4: Follow Good Governance (Resolutions, Minutes, Approvals)

Even in a small company with a single director/shareholder, you should treat the paperwork seriously. It’s not “red tape” - it’s evidence that you acted properly.

Depending on your structure, you may need:

• board minutes documenting the decision and the basis for the price
• a directors’ resolution approving the sale
• a shareholders’ resolution (especially if required by your constitution or the transaction is a major transaction)
• conflict-of-interest disclosure recorded

If you have multiple shareholders, this is where it can get sensitive. Getting legal advice early can prevent relationship damage and reduce the chance of later disputes.

Step 5: Paper The Transaction Properly

You’ll usually want a written agreement documenting the asset transfer (even if it’s a “simple” sale).

The document should cover things like:

• the asset description and condition
• the purchase price and payment terms
• GST treatment
• when ownership and risk transfer
• whether any warranties apply (often limited, but it should be clear)

Step 6: Disclose It Clearly To The Buyer (Early)

The safest approach is to assume the buyer will find out anyway - because they usually will.

It’s better to disclose early, with clean documentation, than to have it “discovered” during due diligence.

In most business sale processes, your sale contract (and disclosures) should match exactly what has happened with the company’s assets. If you’re selling via a standard sale contract or a tailored agreement, a properly drafted Business Sale Agreement can help align the legal documents with the commercial deal you actually intend.

What Are The Better Alternatives To Selling Assets To Yourself Before The Sale?

In many cases, you can get the outcome you want without transferring ownership before settlement.

Option 1: List “Excluded Assets” In The Sale Contract

This is often the cleanest solution. Instead of transferring the asset out early, you simply specify in the sale documents that the business is being sold excluding certain assets.

This can reduce risk because:

• the buyer knows exactly what they are (and aren’t) getting
• there’s less pre-sale restructuring to explain
• you avoid issues around undervalue or timing

Option 2: Keep The Asset, But Lease It To The Buyer

If the asset is important to operations (like premises, equipment, or a vehicle fleet), you may want to retain ownership and lease it to the buyer.

This is common with property: you keep the building personally (or in another entity) and grant the buyer a commercial lease so the business can keep operating in the same location.

If you go down this path, it’s important the leasing arrangement is documented properly and fits the buyer’s expectations (and funding requirements).

Option 3: Sell The Asset As Part Of The Deal, Then Negotiate A Post-Sale Buyback

Sometimes the buyer wants everything included for simplicity (or because their lender requires it). In those cases, you might negotiate a post-settlement arrangement where you purchase a specific asset back.

This can still carry legal and tax considerations, but it avoids the optics of pre-sale value stripping and keeps the sale process smoother.

Option 4: Do A Pre-Sale Legal Due Diligence “Clean Up”

If you’re considering any restructure, asset transfers, or ownership tidying, it’s often worth doing a pre-sale legal check so you understand how it will look to a buyer.

This is exactly the kind of issue that comes up in Legal Due Diligence - it helps you spot problems early, fix gaps in documentation, and avoid last-minute renegotiations.

Key Takeaways

• Selling company assets to yourself before a business sale can be legitimate, but it’s also a common trigger for buyer concern and legal risk.
• As a director, you must act in the best interests of the company, manage conflicts properly, and ensure the company remains solvent (including meeting any required solvency tests and shareholder-approval rules for major transactions) before transferring assets out.
• Undervalue asset transfers, poor documentation, or weak disclosure can lead to disputes, sale price reductions, or claims relating to misrepresentation, director duties, and (if insolvency occurs) potential “clawback” under NZ voidable transaction rules.
• If you do proceed, use a commercial valuation approach, document approvals (minutes/resolutions), and ensure the sale contract and disclosures match the reality.
• Often, a better alternative is to exclude the asset in the sale contract, lease it to the buyer, or restructure with proper advice rather than rushing a transfer.
• Getting the legal foundations right early makes your sale process smoother, faster, and far less stressful.

If you’d like help reviewing your proposed asset transfer, sale structure, or sale documents before you go to market, we can help. Get in touch with Sprintlaw on 0800 002 184 or email team@sprintlaw.co.nz for a free, no-obligations chat.