Sales & Purchases
of Businesses and Companies

Buying or selling a business is a major decision and (where you are the owner and operator of that business) often an emotional one.

There are a number of matters which you should consider in undertaking this action.

Small Business

A small business is one where the goodwill, plant & equipment, fittings are sold for $350,000 or less.

The Vendor must provide the Purchaser with a Form 2 giving details of the assets, liabilities and income of the business.

There are standard sale contract documents which can be used and adapted to your needs.

What to sell?

If you own your business personally or in a partnership, then you will be selling the various assets of the business.

However, if you operate the business through a Company, the Purchaser may want to buy all of the shares in the Company and acquire the business in this way rather than purchase the business and it's assets.

Relevant Assets

You need to consider what is being sold.

Assets can include:
	Goodwill (the value of the reputation of your business)
	Confidential information (Customer Lists, Supply Lists, Price Lists)
	Plant & equipment, furniture, chattels
	Raw materials (used to produce products made by your business)
	Intellectual property (names, logos, domain names, web site , things by which your business is known, processes used in your business)
	Stock on hand
Other relevant matters are:
	Employees - whether the Purchaser will "take over" any employees of the business
	Lease of premises - if the business operates from leased premises then the Purchaser must either take a new lease or an assignment of the existing lease. The landlord's consent must be obtained. A Disclosure Statement needs to be done and, assuming it is accurate, then on assignment the Vendor/Lessee is no longer responsible under he Lease nor is any guarantor the lease.
	Leases of plant and equipment - similar issues apply to those for a lease of premises
	Outstanding orders - whether the Purchaser will take over and complete outstanding orders
	Supply, customer and other contracts - the Purchaser may take these over or enter in to its own arrangements with suppliers and customers
	Vendor's debtors - the Vendor usually collects any debts owed to it before the settlement date.
	How to advise customers of the sale of the business.

Adjustments

Various matters are likely to require adjustments between the Vendor and the Purchaser at settlement. These can include:

	rent, rates, stock
	connection of services (water, electricity, gas) - transfer to the Purchaser
	Insurance - the Purchaser should take out insurance for the business and as required under any lease(s)
	Telephone and fax lines - transfer to the Purchaser
	Yellow Pages and other advertising.

Other Issues

	Confidentiality - the Vendor should be required not to use any confidential information concerning the business after settlement.
	Restraint of Trade - the Purchaser is buying a business and may look to protect it by requiring that the Vendor and its operators not operate a similar business for an agreed time and within an agreed radius from where the business is situated. The time and area depend on a number of factors and should be reasonable in all the circumstances.
	Franchise - if the business is a franchise, there will be other issues to consider including the terms of the franchise arrangements.
	Communication - any decision to sell the assets of a business or the shares in a company should be carefully considered.

It is important that both the Vendor and the Purchaser communicate to ensure that they both understand and agree on 'the deal". They should then have all relevant accounting and legal issues dealt with and properly documented. It can be a confusing and emotional time, so don't assume things. Check, ask questions, be involved, ensure that you manage the process and that you are in control of the process. Your time and effort and any legal and accounting costs will be well spent if you avoid problems and possible costly legal action at a later date.

There are many other matters which must be carefully considered if you are buying or selling a business. The matters detailed here are indicative only.

It is important to obtain legal and accounting advice on the structure and implications of the deal.

We are happy to work with you and your other professional advisers to have the transaction proceed as smoothly as possible.

 

DISCLAIMER
This article is general in nature and for information only. It should not be acted upon without obtaining specific legal advice.

 

©Anne Hodgson & Co Lawyers,
Tel: 03 9578 7444 Fax: 03 8677 2962 Email: info@hodgsonco.com.au