What You Need to Know When Buying or Selling a Business

When negotiating the terms of sale or purchase of a business what will need to be considered will vary depending on the type of business involved. 

However, there are some general considerations that you need to take into account for most businesses: 

  1. Terms of the contract 

Some of the important things that should be dealt with in the contract are: 

  • the business name, domain name, website, logo and other trademarks, client lists and contact details of the business;
  • property, plant, equipment and any other items used in the business; 
  • staff entitlements;
  • agreements the business is a party to such as leases, distribution agreements, hire agreements for goods and equipment;
  • any restraint on trade on the seller from competing in order to protect the business. 
  1. Apportioning the value of the business between plant and equipment and goodwill 

There is no set method for calculating the value of a business. Valuations may be based on revenues, profits or goodwill value or on a combination of these things. Once a sale price has been agreed to it is necessary to apportion it between plant and equipment and goodwill. 

  1. Employees of the business 

When a business is sold the employees either transfer with the business to the new owner or their employment ends with the business. If any employees are transferred with the business their employment details need to be provided to the new owner, including their outstanding leave entitlements which usually becomes the responsibility of the purchaser. Employees that are not transferred with the business will need to be provided official notice in writing and the seller will be responsible to pay out any entitlements to these employees.

  1. Training the new business owner as part of the sale

It is common practice for the purchaser to request that the seller provide some training to the purchaser. From a purchaser’s perspective, it is preferable for the training to occur prior to settlement as often a seller may have little interest in providing assistance after the business has been sold. The purchaser also needs to be in a position where they can hit the ground running on when they take over the business. 

  1. Tax consequences of the sale 

There may be some tax implications of the sale of a business, including GST, whether it is applicable or not, and Capital Gains Tax. There may be different consequences to both the seller and the purchaser based on the value attributed to the business and any portions of the sale price such as plant and equipment and goodwill. It’s important to obtain advice from your accountant before the contract is entered into. 

I’ve thought about it. What now?

The sale or purchase of a business can be a complicated transaction. Whether you are the purchaser or the seller of the business, it’s important to obtain legal advice that considers taxation and planning aspects of the transaction for both the seller and purchaser of the business.

At Cohen Legal we regularly liaise with accountants and financial advisors so we understand the issues that need to be addressed in order to achieve the best result for our clients. Contact Us today.