We Moved Into a Company and Lost All Our Goodwill

Written by Volha Romanchik | 16 March 2026

Many growing businesses eventually reach the “we should probably tidy up our structure” stage.

They’ve built a solid operation – recurring revenue, some IP, a recognisable name, loyal clients. The next step often looks like this:

Set up a new company (sometimes with a holding company on top),
Move the existing business into that structure,
Get a valuation to support a “purchase price” for the transfer.

On paper, the result can look very impressive. The new balance sheet shows goodwill, brand value, software and other intangible assets. It feels like the business has finally been given the recognition it deserves.

Then the first set of financial statements is prepared under the accounting standards… and most of those intangibles quickly disappear.

The business hasn’t collapsed. The accounting has simply stopped being polite and started being accurate.

Internal deal vs real acquisition

Commercially and from a tax perspective, it can feel like a genuine acquisition: one entity “sells” the business, another “buys” it, consideration is shares or a loan, and a valuer signs off on a number everyone can point to.

Accounting starts with a less glamorous question:

Who controlled the business before, and who controls it now?

If the answer is essentially “the same people”, then from a group perspective this is usually a restructure under common control, not a business combination. In plain terms, you’ve moved your own business from one structure to another, but the owners have not changed.

That distinction drives everything that follows.

In a common-control situation:

The group does not apply the normal acquisition method under AASB 3;
It does not get new recognised goodwill based on the transaction value;
The assets and liabilities are brought in at their existing carrying amounts, not at the valuer’s fair value.

Any difference between the “deal price” and the old book value is treated as an equity adjustment – a restructuring reserve – not as an asset. It may be meaningful to the owners, but the balance sheet refuses to call it goodwill.

Goodwill and brand: valuable, but not always bookable

This is where expectations and the standards part company.

Owners quite reasonably see value in:

the reputation they’ve built,
the relationships they’ve developed,
the fact that clients keep coming back.

In everyday language, that’s “goodwill” and “brand”.

The accounting rules take a stricter view. They say:

Internally generated goodwill cannot be recognised as an asset; and
Internally generated brands, customer lists and similar items also cannot be recognised.

Those items can only appear on the balance sheet when they are acquired from an external party in a qualifying business combination. If they arise from your own efforts over time – or from moving the business into a company you control – they stay off the balance sheet, no matter how important they are commercially.

So when a valuation report says “goodwill: $X” and “brand: $Y” as part of an internal restructure, the group accounts will usually say “thank you, but no”. From the group’s perspective, that is internally generated value, and the standards simply don’t allow it to be booked as an asset.

What might survive: software and specific IP

Not all intangibles are doomed. Some can be recognised, provided they meet the criteria and have a clear, supportable cost base.

Typical examples include:

Software development costs – salaries and contractor fees for building a product, once the project is technically feasible and clearly moving towards a usable asset;
Legal and registration costs for trademarks or patents;
One-off purchase costs for domain names or specific IP rights acquired from a third party.

The common thread is that these balances are based on documented historical expenditure, not on a percentage of a valuation.

What generally does not qualify are things like:

broad “IP uplift” amounts,
accumulated marketing and brand-building spend,
valuations of processes, know-how or methodologies without a clear cost trail.

When you strip away the amounts that are really just fair value allocations and leave only what is supported by actual invoices, payroll and contracts, the intangible section of the balance sheet often becomes much more modest.

The other side of the story: obligations that move with the business

It’s tempting to focus only on assets and equity, but liabilities also need a home after a restructure.

Questions such as:

Who is now responsible for delivering services that customers have paid for in advance?
Who owes the suppliers, staff and landlords tied to the transferred operations?

If the new company is the entity interacting with customers, providing the services and employing the staff, then associated liabilities normally move with the business as well – including unearned or prepaid revenue, employee entitlements, and relevant payables and accruals.

Once you:

remove the intangibles that aren’t allowed, and
bring in the obligations that clearly are,

the resulting net asset position can be quite different from what the original restructuring “deal” implied. In some cases, the group may even present negative equity.

That doesn’t automatically mean the business is failing. It often reflects the reality that the business is funded by shareholder loans or has carried forward losses. It does, however, replace the comforting narrative of “we’ve created goodwill” with a more honest one: “we’ve clarified how this business is funded”.

Thinking ahead before (or after) you restructure

If you’re planning a restructure – or already sitting inside a new company structure that took over an old business – it’s worth asking a few questions before the first audited financial statements are due:

Is this truly an acquisition from the group’s perspective, or is it a transfer under common control?
Which intangible balances can we genuinely support with underlying costs, rather than just valuation numbers?
Where do contract obligations, prepayments and staff entitlements really sit now, both legally and in substance?
Are we prepared for a first balance sheet that may show little or no goodwill, and possibly a weaker (or negative) equity position than the valuation document implied?

The commercial reasons to restructure – tax efficiency, risk separation, investor readiness, succession planning – may all still be perfectly valid. The accounting simply has its own, less romantic, way of describing what happened.

If there is a theme running through all of this, it’s that the standards are quite happy for your business to be valuable. They are just very particular about when that value is allowed to appear as an asset in your financial report. The rest of it lives in the judgement of owners, investors and customers – which, in the end, is where real goodwill has always lived anyway.

If you are unsure how a past or planned restructure should be reflected in your financial statements, or would like an independent view on the accounting and tax implications, we are very happy to talk. It is almost always easier – and less stressful – to work through the implications early, rather than discovering surprises when the first set of financial statements is already on an auditor’s desk.