Buying or selling a business is an important financial decision for both parties. A seller has this one opportunity to crystallise perhaps years of investment in the business; and the buyer must ensure that it obtains the value for which it is paying. Both parties want the same outcome- the transfer of the business- but it is important to get the details right at the beginning so that the transaction results in the intended outcome.
Before getting started with buying or selling a business, we recommend thinking through a few variables first.
Most business transfers are a sale and purchase of the business assets (rather than the alternative of transferring shares in the seller's company). There are variations to how the sale of business assets will be affected; for example, if the sale is to qualify for the GST exemption available for the sale of a business as a going concern, certain elements will need to be present in the sale.
Before the parties begin negotiating the transaction, a non-disclosure agreement ("NDA") should be signed by which the parties agree to keep confidential all of the information that will be exchanged between them in negotiations. The NDA usually requires the parties to destroy or return information if the transaction does not proceed.
Before proceeding to draft a sale agreement, both parties should understand the legal owner of the business assets being sold. Sometimes assets or interests in leases or licences are held by entities related to the seller but not by the seller itself, which can cause issues when it comes to settling the transaction.
The lease of particular business premises may be an important, or even essential, part of the business' value. Ensuring that the seller's interest in the lease can be assigned on terms acceptable to the buyer is sometimes overlooked by the parties until too late in the transaction. The landlord's mortgagee may also need to consent to the lease, so it is best to look into the lease as early in the process as possible.
Accrued employee leave entitlements are sometimes misunderstood by parties to a business sale. A business seller cannot unilaterally decide to pay out accrued long service leave and personal leave entitlements. The Long Service Leave Act (SA) and the Fair Work Act (Cth) provide that a business purchaser, as the continuing employer, will be liable for accrued entitlements of employees. This may be the case even if the business seller intended to extinguish such entitlements by paying the accrued amounts to the employees. It is important that the parties obtain legal advice before negotiating any arrangements about accrued employee entitlements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
