Sale & Purchase of Business
If you are buying or selling a business, it is important to get professional advice. We can draft, review, and negotiate the contract provisions, recommend due diligence, and ensure that your legal rights are protected. We often recommend that clients also consult their accountant who we can work with to structure the transaction to provide an optimum outcome that considers the legal, financial and taxation implications.
Considerations when buying a business
The optimum time to obtain advice on your business transaction is well before a contract is signed. A lawyer can flag potential issues that have not been provided for in the negotiations and can review the proposed contract and associated documents to protect your interests.
Due diligence
Conducting due diligence means carrying out investigations to ensure that the business you propose buying reflects what has been offered and is likely to deliver on your expectations. This usually means taking a detailed look at the sales history, including profit and loss statements, business expenses, the inventory of all assets and liabilities and interviewing key personnel. There are a range of other due diligence tasks that we may recommend depending on the nature of the business and your personal circumstances.
Contract terms
Your negotiations should be documented in a written agreement that sets out the rights and responsibilities of each party. The contract should reflect and contain provisions for everything that is being offered by the vendor. It should also include terms to cover a range of contingencies for unforeseen events.
Incidental agreements and transfers
The transaction often includes incidental agreements necessary to run the business, for example, a service or maintenance contract, or a commercial lease for the premises from which the business operates. Buyers will need to consider the suitability of these agreements and arrangements for transferring them. Other considerations include the transfer of intellectual property, domain names and trading names.
Finance arrangements
Sufficient funds will be needed to cover not only the purchase price, but incidentals such as transfer duty, Goods and Services Tax (GST) if relevant, and possibly, the first few months’ running costs. If you are getting finance, this needs to be approved and in place ready for settlement.
Business structure
The size and scope of your business endeavours are key considerations when choosing a legal structure for your business. If you are starting a business as an individual, operating as a sole trader may be suitable, but under this structure you will be solely responsible for all debts and liabilities of the business.
If you are starting a venture with business partners, a partnership may be suitable. With a partnership, all partners are responsible for all debts incurred in the business no matter which partner incurred those liabilities. For this reason, some prefer the protection afforded by a limited liability company.
A company, which is registered with the Australian Securities and Investments Commission, operates as a separate legal entity, and may provide a better solution when it comes to the tax payable on your profits.
To maximise the protections provided by a company, a lawyer may suggest that you form a trust. A trust may provide further tax benefits and limit your liability however, it may be more costly and complicated to manage.
Obtaining guidance from a lawyer will help form the right strategy to commence your venture.
Selling a business
Selling a business, just like starting one, can be a bit of a process. Once you have found a buyer, you will need to negotiate the terms for sale. There may be existing staff to consider, and you may need to sign over certain agreements such as leases or service contracts. Our lawyers can help with all of this to ensure that your sale goes smoothly.
Considerations when selling your business typically include:
- What are you selling? Is it a transfer of shares or an outright purchase of the entire business. Does the ‘business’ you are selling constitute a business name and goodwill only, or are there physical assets such as plant, equipment, and inventory to be included in the purchase price?
- Structuring the sale for an optimum outcome and the relevant tax implications on the sale – you may wish to consult your accountant about this.
- Preparing ancillary documents in addition to the contract for sale of business. For example, you may require prospective purchasers to enter a confidentiality deed before commencing negotiations.
- Employment issues – whether existing employees are to be kept on by the incoming purchaser and liability and adjustments for employee entitlements such as sick leave and annual leave.
- Provisions for assignment or transfer of incidental agreements required to operate the business such as commercial leases and service agreements.
- Costs of the sale such as broker commissions, legal fees, payment of current business debts and any costs associated with transferring a lease or other rights to the incoming purchaser.
If you need assistance, contact [email protected] or call 03 9546 8155 for expert legal advice.