So you have an offer to buy your business. How exciting!
Although there may be agreement on the price being paid and the amount of deposit, what else needs to be considered?
- How is the price apportioned between goodwill and equipment?
- Have you considered the costs associated with the sale – you may have an agreement with a business broker, but there are lawyers, accountants, financial advisers also.
- What about tax, capital gains tax (CGT) in particular, and is GST payable?
Who does what?
You need good advice. You are great at what you do, but you cant do everything. You need a great team of advisers – this is their thing.
Your lawyer will be required to prepare the legal documents that give effect to the sale (such as Business Sale Contract, Share Sale Agreement, Deed of Restraint, Deed of Consent to Assignment of Lease, Employment Contracts, Deed of Novation, Consultancy Agreements etc… yes, there may be others).
Your accountant can advise on the price apportionment and taxation implications, whether GST is payable or not, and how to make the most of any CGT concessions, exemptions and rollover relief such as those relating to small business and retirement.
Your financial adviser can give you advice on what to do with your cash to make the most of it now or in retirement.
What are you actually selling?
It would seem obvious, but have you considered what you are actually selling? Are you selling your business or, in the case of a company or unit trust, the entity that owns it?
There is a big difference, particularly given that entitlements to income and liability for expenses incurred prior to completion of the sale will remain with the vendor under a business sale whereas in the case of a share sale, the whole lot will be under the control of the purchaser from completion.
This will also affect how much due diligence a purchaser may undertake – as any prudent purchaser would have concerns about potential claims, tax debts etc
The usual things
Assuming a sale of business, not a share sale, some of the other things to consider is what is included in the sale?
- Business name
- Plant and equipment used by the business
- Customer lists
- Agreements with suppliers, referrers… to the extent they can be transferred
- Phone/fax numbers, logos, domain names, email addresses social media etc
- Intellectual property – do you have any trademarks?
- Licenses/permits to operate the business
- Are staff being terminated or transferring to the purchaser? What are employee entitlements are due?
- Are the business premises leased? Is the agreement subject a an assignment of the existing lease or the granting of a new lease?
- Personal Property Securities Register issues – for example, is the telephone system under a hire purchase agreement? Is the photocopier leased?
- Do you need the consent of anyone to the sale proceeding? Eg, a franchisor, a mortgagor, someone you have given a first option to purchase to for example?
- Are there to be restraints of trade/non-competition provisions that affect you? What about for key staff?
Although an exciting time, there are many issues that need to be considered when you are selling your business. The abovementioned items are certainly not an exhaustive list of things to consider and every business is different, but hopefully it gets you thinking about what you may need to consider when selling your business.
Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to buying/selling businesses, intellectual property or any commercial law matter, contact Craig Pryor on (02) 9521 2455 or email firstname.lastname@example.org.
This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.