Purchase of Business and Sale of Business

Buying a business can be a risky endeavour and it is vital you perform due diligence before making any big decision. Understanding what steps must be taken to ensure the legal and financial health of a business before purchasing it is crucial. Getting independent financial advice from an accountant or business adviser on the company's finances and financial status, and independent legal advice on the contract of sale is good first step to take.

Generally, the following steps will take place in the buying of a business:

1. Finding the right business  
2. Negotiations 
3. Contract finalisation and execution  
4. Completion/Settlement 

Pera Lawyers are here to help you every step of the way.

Each business transaction is unique and there is no "one size fits all" approach to purchasing a business. Some key considerations that should be taken into account by a purchaser include:  

1. Is there a lease to be transferred and how long are the remaining terms? A purchaser should carefully consider the obligations of the lease that is being transferred as some leases can have onerous provisions. It is important that a purchaser is aware of these before signing. 
2. Will there be a restraint of trade applied to the vendor post settlement? To protect their business investment, most purchasers will require the vendor to sign a restraint of trade clause that prevents the vendor from opening a rival business nearby. 
3. Will any employees be transferred and how will their entitlements be apportioned? A diligent purchaser should have the contract of employment of each employee reviewed prior to transfer. They should also see if the employee is a good match for their organisation. 
4. What is the nature of the tangible assets, such as plant and equipment and intangible assets, such as intellectual property and websites, that will be transferred on completion? A clear list of assets being transferred at the outset in the contract of sale can prevent any disagreements from arising at settlement. 
5. Does the operations of the business conform with regulatory requirements of relevant authorities such as the local council? A purchaser should always do their own checks and research into the business they are enquiring and not rely on the representations made by the vendor or their business broker. 
6. What will be the entity under which you will purchase the business and have you given legal risk and taxation consideration to this issue? Getting legal and financial advice at the outset of the transaction can help establish your business structures in the most advantageous way. 

There are extra procedures and paperwork to consider if the business you want to acquire is a franchise. This includes things like reading through the franchise agreement and giving serious thought to the commitments you are making. Franchise agreements are often strongly structured in favour of the franchisor.

You should sign the contract only after you've done your due diligence and are confident in your understanding of the business's value and the scope of the protections the contract contains.  A full or partial deposit, as specified in the contract, is generally paid at the time of signing, and a receipt for this amount must be received as confirmation of this transaction.

Purchasing an established business is an exciting but difficult adventure. At Pera Lawyers, we urge our clients to seek the counsel of a competent accountant and lawyer before making any major decisions or signing any contracts.

Before selling your business, you should consider speaking with your accountant and lawyer about the process involved. Your accountant can give you advice on the best tax and financial strategy whilst your lawyer can make sure that you have the necessary legal documents in place. You may also engage a business broker (similar to a real estate agent) who lists and advertises the sale of your business for a commission. Pera Lawyers works closely with our clients, their business brokers and accountants in helping them sell their businesses.

Generally, the following steps will take place in the sale of a business:

1. Pre-sale preparations including contract of sale of business and section 52 statement (if applicable)
2. Finding a buyer 
3. Negotiations 
4. Contract finalisation and execution  
5. Completion/Settlement 

Pera Lawyers are here to help you every step of the way.

When selling a business, some factors to be mindful of include: 

1. Do you need a non disclosure agreement during negotiations? Some business sales are commercially sensitive and require an added protection of confidentiality during negotiations. 
2. Which stocks and assets are changing hands? Make sure there is no question about what you are selling by compiling a list of the machinery and supplies you want to part with. Included in the selling price should be anything that is not being sold separately.
3. How will the transfer of intellectual property, plant and equipment, and goodwill be divided up? You should consult your accountant for guidance on this matter. It's important to consider the potential tax implications before deciding how to split the proceeds of a transaction.
4. Will you be transferring a lease? If your business operates out of physical space (like a café), the new owner will require a transfer of lease. Think about your lease and any remaining options before you start marketing your business. It's one of the first things a buyer will want to see before making an offer.
5. Will you be agreeing to a restraint of trade? Restraint of trade agreements are sometimes requested by new buyers as they seek to protect their investment from the seller of a business. The seller will be prohibited from starting a rival business within a certain distance and time frame. Think about how a clause like that may affect you.
6. What will be the assistance period for handover? In order to facilitate the transition for the new buyers, many sellers provide a handover period. The majority of the time, they will assist the buyer throughout the transfer. The time frame in which the seller agrees to provide support to the buyer must be specified.
7. Will you be transferring any employees? If you have employees that are going to be transferred to the purchaser, you should consider any employment contracts and leave entitlements. Your accountant will be able to assist you with this process. 

Given the multidisciplinary nature of our firm, our commercial lawyers are able to provide comprehensive advice when acting for vendor clients selling a business. This includes advising vendors on their contractual obligations, matters relating to leases and employee transfers.