As the economic effects of COVID-19 begin to be more harshly felt by Australian businesses, many business owners are choosing to sell their business. Whether triggered by financial hardship, business partnership disagreements, market changes or a desire for a change, the importance of ensuring assets are properly transferred to the purchaser remains unchanged.
It is a common misunderstanding that a business can simply be handed over with a basic document signed by both parties. However, as the above below suggests, there are many aspects and complexities to a sale of business and it is important to ensure that as either a Business Owner (Vendor) or Purchaser, your interests are protected. This occurs via many methods including, for example a comprehensive or business specific contract, due diligence searches.
What do I Need to Consider?
The considerations and requirements for each business sale will differ depending on the industry, size, purchase price and entities involved in the sale. However, the key common aspects of each sale for which a business owned (Vendor) must turn their attention are as follows:
- What tangible (physical) assets are being sold as part of the business (i.e. plant and equipment), identify those that will or will not form part of the sale and the condition and value of each;
- What intellectual property forms part of the sale (i.e. trade mark), what is the estimated value of this;
- Is there any work in progress? How will this be dealt with, who will finish it and how will any payments for this work be arranged?
- Whether the premises are leased or licenced. In this regard, you will need to take note of what the expiry date of this lease/licence is, whether there are any make good provisions. You will also need to factor in an extended time frame to allow for an assignment of the lease/licence or a new lease/licence to be negotiated by a purchaser and obtaining any landlord or licensor consent. It is also helpful to locate a copy of the lease or licence;
- If the business franchise? What requirements are there under this agreement? As with a lease, franchisor consent will need to be obtained. There also may be other critical disclosure documentation that needs to be prepared for the purchaser;
- Review employee contracts, arrangements and entitlements, in particular the payment of all statutory requirements (i.e. superannuation);
- Whether the business is currently involved in any legal action or the threat of legal action;
- Whether there are any licences, PPSR or loan agreements over any of the business assets and the nature of these;
- Do you intend to own a similar business in the future? Where would this be? These will need to be taken into account should there be any restraint of trade. Also consider who the ‘key persons’ of the business are;
- How is your confidential material protected? Ensure this is adequately protected when entering into negotiations with a prospective purchaser.
Do I Need a Lawyer? When Should I Engage a Lawyer?
At Adams & Partners Lawyers we understand that every business sale is different and have experience acting for both purchasers and vendors. We strongly suggest that, whether you are a Vendor or Purchaser, you speak to us in the early stages of buying, selling, merging or restructuring your business for the following reasons:
- We can assist with the preparation of a ‘Heads of Agreement’ to provide initial clarity on the essential key terms and bind a purchaser to these initially. This document can then be used to more easily draft a contract.
- Assist with due diligence for both vendors and purchasers. This will ensure you are aware of any registered interests against the business and what you are buying.
- Advise you on business structuring and asset protection measures and work with your accountant to achieve the business structure best for you and the operation of your business to maximise protection and efficiency;
- Assist you in your negotiations and ensure your interests are protected; and
- Help you navigate through any legal or regulatory requirements so that your transaction is as smooth as possible;
- Assist in negotiating any loan agreement with respect to any Vendor Finance offerings.
Should you have any questions or require any assistance in buying or selling a business please do not hesitate to contact our highly experienced business law team, Mr Heath Adams and Ms Amelia Hatton on (02) 4721 6200.
Written by Amelia Hatton.