Are you considering selling a business in Victoria? We have set out a checklist of important topics to consider when you are selling your business.
Checklist for Selling a Business:
1. Section 52 Statement
If you are selling your business for $450,000.00 or less, you will need to provide the Purchaser with a Section 52 Statement pursuant to s 52 Estate Agents Act 1980 (Vic) (unless the purchaser could not lawfully carry on your business without a liquor licence).
The Section 52 Statement sets out details about the business, including its financial position. You should ask your accountant to prepare the Section 52 Statement for you.
It is an offence to fail to provide a Section 52 Statement when you are required to do so, and it could also give the Purchaser grounds to end the Contract, so it is important that you have this prepared.
2. Heads of Agreement
When selling a business, you may want to include the major terms and conditions of your sale in a Heads of Agreement with the Purchaser, prior to a formal Contract of Sale being prepared or entered into. Heads of Agreement are useful where it is going to take some time to prepare a formal Contract of Sale, or if some terms are still to be negotiated. They can be either binding or non-binding.
3. The Contract
It is critical that you have a Contract of Sale prepared that addresses all aspects of the sale. For many sales of small businesses, it will be appropriate to use the Law Institute of Victoria's precedent contract. No business is the same however, and so you will need to have Special Conditions in the Contract professionally drafted and tailored to your particular business.
When selling a business, it is critical that the Contract of Sale is comprehensive, so as to make it clear what the responsibilities of the Purchaser and you as Vendor are.
4. Business Premises
You will need to transfer any lease to the Purchaser. The Purchaser will usually want the sale Contract conditional upon the Landlord agreeing to the transfer of the lease.
Whilst it is the Purchaser's responsibility to prepare the lease transfer documents, you will need to make the formal request to the Landlord for the lease to be transferred. If the lease is a retail lease, you are also required to provide the Purchaser with details of the lease and a disclosure statement. If this is not done properly, you risk incurring damages and you could find yourself in a position where you are still liable under the original lease, should the Purchaser default on the terms of the lease.
5. Intellectual Property
The Contract should clearly state what intellectual property you are selling as part of the business, and what intellectual property you are retaining. If there is intellectual property that needs to be assigned or transferred, then this will need to be done as part of the sale process.
The Purchaser will require any registrations against the business on the Personal Property Securities Register to be removed at or prior to settlement of the sale of your business.
7. Restraints of Trade and Confidentiality
The Purchaser may want restraint of trade and non-solicitation clauses in the Contract. If you are planning on operating or working in a similar business to the one you are selling, make sure these clauses are not going to affect your future plans.
8. Assistance period
Consider whether you are willing to assist the Purchaser in the business after settlement, prior to signing the Contract. This is something that should be addressed in the Contract, so everyone is clear on the expectations.
The Fair Work Act 2009 (Cth) sets out what entitlements and obligations need to be transferred to the Purchaser in relation to employees, including enterprise agreements. If the Purchaser is taking on responsibility for employee entitlements, they will want the sale price to be adjusted at settlement to take into account these entitlements.
If the Purchaser is not retaining your employees, then you will need to give your employees proper notice and pay your employees their redundancy entitlements and any accrued entitlements they may have. For more information, see our previous article on what happens to employees if you buy or sell a business.
The sale of a business will usually be the sale of a going concern, so you will not usually need to collect GST on the sale. However, this must be documented in writing and you must confirm that the Purchaser is registered for GST.
The sale of your business will be a capital gains tax event. If you are selling a small business, you should see whether you are entitled to any of the small business CGT concessions or exemptions. Your accountant will be able to advise on the tax that you will be required to pay on the sale.
For more information if you are buying a business, see our previous article on buying & selling businesses.
Have any further queries?
At Sharrock Pitman Legal, we have assisted many customers with the sale of their business. If you would like assistance in selling a business or have any further queries, please feel free to give Mitchell Zadow, Managing Principal and an Accredited Specialist in Commercial Law, a call on (03) 9560 2922 or alternatively fill in the form below.
The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.
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For further information contact
Mitchell is the Managing Principal of our law practice.
He is an Accredited Specialist in Commercial Law (accredited by the Law Institute of Victoria). He also deals with areas of Employment Law, Wills & Estate Planning and Probate. For further information, contact Mitchell on his direct line (03) 8561 3318.