Tips for Buying and Selling a Business
Buying and selling a business: Things to think about before you get started
Buying or selling a business is a major financial move for both the buyer and the seller. For the seller, it may be the one chance to realize the value of years of hard work and investment. The buyer, on the other hand, needs to be confident that they’re getting what they’re paying for. While both parties aim for the same result—the successful transfer of the business—getting the details right from the outset is critical to achieving that goal.
Before entering any sale or purchase, it’s important to carefully consider several key factors.
Business sales can be structured either as an asset sale or a share sale, each with different tax, liability, and regulatory implications. If structured as a GST-exempt “going concern,” all conditions must be strictly met, including supplying all things necessary for the continued operation of the enterprise. The parties must also explicitly agree in writing that the sale is of a going concern.
Before any serious discussions take place, both parties should sign a confidentiality agreement (also known as a non-disclosure agreement or NDA). This legally binding agreement must specify the scope of confidential information, permitted uses, duration of obligations, and requirements for return or destruction of confidential information if the deal doesn’t proceed.
It’s also essential to conduct proper due diligence to identify who legally owns the business assets, including conducting PPSR searches and title searches where applicable. In some cases, assets or lease rights may be held by entities related to the seller rather than the seller directly, or may be subject to security interests, which can complicate finalising the sale.
Leased premises often play a crucial role in a business’s value. It’s vital to confirm early on that the lease can be transferred to the buyer on acceptable terms. Sometimes, the landlord’s mortgagee also needs to approve the lease transfer. This process should commence as soon as possible as it may impact deal timing and structure.
Another area that can cause confusion is employee entitlements, such as accrued leave. Sellers can’t simply decide to pay out these entitlements without considering legal requirements. Under the applicable State or Territory Long Service Leave legislation and the Fair Work Act 2009 (Cth), the buyer, as the new employer, generally assumes responsibility for these entitlements through transfer of business provisions. Both parties should seek legal advice to understand their obligations regarding employee entitlements before negotiations begin, and be clear on who is responsible for paying those entitlements.
If you have any questions about buying or selling a business, please do not hesitate to contact me. I am here to help.
DISCLAIMER: This explanation is for informational purposes only and does not constitute legal advice.