Scenario
Fred and Jane desire to purchase a small business (not a franchise). They understand there are a number of matters that require careful consideration in addition to simply the purchase price and so they thoughtfully seek the advice of their business lawyer for further guidance.
Guidance
The role of the business lawyer is to guide Fred and Jane through the purchase of the business and provide them with proper legal title to what it is they have agreed to buy.
There are many matters that require very careful consideration before Fred and Jane sensibly go ahead with a purchase of a business. We provide a non-exhaustive list of such matters for their consideration:
- Is buying this business a smart decision in the first place? (seek licensed independent financial advice)
- What type of business structure or mix of legal person(s) is best fit to buy business assets?
- Taxation & Stamp Duty advice on purchase must be sought before buying the business (including GST ie. going concern exemption etc)
- Are you buying business assets or the existing business structure of the person/entity selling the business? ie. buy the shares in a company as opposed to the company’s assets themselves.
- Business insurances in place (seek licensed independent insurance advice)
- Ascertain exactly what it is that you are buying (stock/inventory, plant and equipment, goodwill, logo’s, trademarks, registered trading name etc)
- What happens to Trade Debtors, Trade Creditors, Work in Progress?
- Are Lay-By Goods or Consignment Goods an issue?
- Are you buying intellectual property?
- Is what you are buying encumbered by debt? If so how do we release the debt?
- Are all employee related matters attended to (including accrued employee benefits (liabilities))?
- What is employee workers compensation claim history and current status?
- Are all licenses and registrations being transferred to you from the seller?
- Are there trade restraints in issue?
- Do you have lease or other premises sorted?
- Do you have the necessary licenses and qualifications to operate such a business?
- Do you have written authority by finance provider before you exchange contracts?
- Do confidentiality issues arise?
- What are the training issues for management & staff?
- Do you need to request the sale proceeds are maintained in trust after sale takes place (or other legal security devices implemented) for a certain time so that any outstanding monies are paid from the seller’s entitlement to sale proceeds?
- Are there merits in the purchased being staged over time (incrementally) or fully up front?
Note: No financial advice whatsoever will be provided by the business lawyer as to the purchase price in relation to whether or not the purchase is a sound investment. Only a suitably licensed finance professional can do this. A business lawyer will advise on the legal effects of the business “going bad” (insolvency, bankruptcy, liquidation etc).
Further information: Blackwell Short Lawyers, Department of Fair Trading, Industry Association Groups, your Accountant, Australian Taxation Office (ATO), OSR NSW