Buying & Selling Businesses

Buying or selling, in either case, there are a number of important factors to consider to ensure the process is a smooth one.

Not only is it important to ensure that your interests are looked after, it is also essential to make sure that all the necessary legal steps are taken so you can have peace of mind that the process is completed with full legal compliance.

Every business and industry is different and will have various special requirements.  However, here are some of the key tips that generally should be considered when buying or selling a business:

Buying a Business

• Before you sign a contract, it is important to do detailed due diligence on the business. This can include a review of its finances and books, assets, equipment finance, intellectual property registrations, leases, employee contracts and significant contracts with suppliers and customers. Check out our Due Diligence Guide for more tips! Lawyers and accountants are helpful in completing this review so as to identify any potential issues.

• Do not sign the contract until you have had it professionally reviewed by your lawyer. Not all contracts are the same, even if they appear to be based on a standard-form template. Beware of clauses that create an unreasonable degree of risk for you as the purchaser or which are unfairly biased towards the vendor. If you require any special terms for the sale, they must be negotiated and included in the contract before it is signed.

• How will you structure your ownership of the business? Is a company appropriate? Or a family trust? Get good advice and start planning this early.

• Will you be taking over an existing lease? Or do you want to negotiate a new lease or changes to the existing lease? If so, this must be included as a condition in the contract.

• Do you require the vendor to agree to any non-compete obligations and/or restraints against poaching employees or customers? These need to be carefully drafted in the contract, otherwise they might not be legally enforceable.

• Do you require the vendor to provide an assistance period before and/or after you take over the business?

• What permits, licences and registrations might be needed to run the business legally? Checks should be done with the local Council and government agencies. It might be appropriate to make the contract conditional on such approvals being granted.

• Find out from the vendor if they have clear title over the business and its assets, or if any third parties, such as banks or suppliers, have security interests over the business and its assets, including on the Personal Property Securities Register (PPSR).

• Who are the current employees in the business? How long have they been employed and what are the terms and conditions of their employment? Obtain copies of their contracts of employment.

Selling a Business

• When selling a business, it is usually the vendor’s prerogative to draft the terms of the sale contract. Accordingly, get good advice about what terms should be in the contract to ensure the sale proceeds smoothly and to protect your interests as the exiting business owner.

• Will you require payment of the purchase price in full at the settlement date? Or will you offer vendor terms, i.e. payment by instalments? If so, appropriate security for payment, such as directors’ guarantees, should be included in the contract to reduce your risk if the purchaser defaults.

• If you will be assigning a lease to the purchaser, it is usually the vendor’s responsibility to obtain the landlord’s consent. If your lease is for retail premises, certain disclosures need to be made to ensure you will have no ongoing liability under the lease.

• Investigate what employee entitlements you will be liable to pay your employees when the business is handed over to the purchaser, especially if the purchaser will not be offering new employment to all your employees.

• Check whether any of your business assets and equipment are subject to finance or hire agreements. Do any third parties hold security interests over the assets, including on the Personal Property Securities Register (PPSR)? You usually must have clear title to the business assets as at the settlement date.

Looking to buy or sell a business? Contact us for expert advice from Accredited Specialists in Commercial Law.

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