Legal Considerations when Selling a Business
Some more important aspects:
- Is Selling a good idea in the first place? Financial matter refer to financial advisor.
- Vendor[Seller]: Legal entity [company registered, directors, trustees, partnership]; contact tax advisor as structuring may be required/best option prior to sale [consider CGT small business and other aspects].
- Purchaser [Buyer]: Legal Entity [same considerations as above].
- GST: Going Concern: All things necessary to pass from Seller to Buyer [Stock, Equipment, Contracts Novated, Employees, Land Security of Tenure etc]; GST registration [different from ABN registration], lease new or transferred or not required?; Valid GST Tax Invoice at the end if not a going concern; What if ATO audit says it was not a going concern?
- Deposit Invested: Depending on significance of the sale price, Interest [shared?] and tax file numbers etc, care prudential requirements of withdrawing the funds ie 30 day rule, interest penalties, bank costs etc.
- Intellectual Property: Business Name, Trade Marks, Patents, Trade secrets/formula, procedure for transfer/assignment etc [refer IP Australia website].
- Social Media & Contact Numbers: Website domain names, emails, facebook administrator rights to pass, mobile phone numbers can be very important etc.
- Completion Date: 42 days or otherwise agreed
- Selling Assets of the Entity: for small businesses generally the assets are sold as op0posed to the entity that owns the business assets, an exception to the rule can be real estate agencies which have rent rolls.
- Inclusions/Exclusions: ie exactly what are you selling and what [if anything] is specifically excluded [vehicles, art works, equipment etc] very important.
- Stock: Definition of ‘saleable stock’, can be a problematic area, does not include perished or unsaleable or obsolete stock! Is it included in sale price or additional!
- Dissection of Sale Price: Goodwill and Equipment, usually differing desires for taxation purposes by a seller and a buyer;leave in-dissected?; TD98/24 [concerns capital apportionment of asset components of property and fixtures but by analogy applies to sale price of business without any conflicting rulings known].
- Confidentiality: Issues may apply be mindful.
Some more important aspects:
- Restraint [of Trade]: Reducing scale of options, purchaser to be given right to build relationships with customers etc; Enforceable if significant or paid.
- Warranties Agreements: [if required]; workmanship/labour v parts/materials [factory backed.
- Is Sale Subject to Franchise or Licensing Agreements or Government Contract: Need to be on board very early with the Franchisor/Licensor/Government Authority as to consent and transfer of rights and obligations, contract novation.
- Permits/Licenses/Qualifications: Does anything require transfer or assignment and can it be transferred or assigned or is a separate application required ie liquor license, franchise consent, concrete truck sub-contractor license etc?
- PPSA Registration: “Personal Property Security Act NSW’; Registrations/Releases etc.
- Other encumbrances: Mortgages, Personal Guarantees by Directors, Equipment finance/leases/hire purchase/balloon arrangements etc, get financiers etc on board early to ensure all is well and consented and not any issues [prior to exchange of contracts].
- Passing of Risk: Completion date or date of purchaser taking occupation/control.
- Employees: On exchange the buyer will offer employment, those employees not offered or those that do not accept an offer are terminated and paid out by the seller. In the event of employees that accept an offer, however, the buyer does not provide notice of recognition of prior service the employee accrued entitlements are paid out by seller as if they were terminated, otherwise, an adjustment is made by the seller in favour of the buyer to compensate for the accrued employee entitlements as at date of completion.
- Workers compensation claims history: Can be asked by the purchaser and may have a significant impact on the premiums going forward of the purchaser.
- Performance retention amounts: Can be complicated and care re enforcement.
- Notifications: Notify of the change or ownership, suppliers, contractors, clients etc.
- Training: Negotiate reasonable training a s part of sale, lengthy consultancies etc may require payment in addition to sale price, pre/post completion date, care confidentiality/trade secrets/employees [ie change management] etc.
Do not hesitate to approach Blackwell Short on (02) 6393 9200 to assist you in the sale of your business.