Selling your business? Our top tips to avoid common mistakes

Corporate & Commercial 17 December 2018

Selling a business can be both an exciting and daunting experience.  Contractual and legislative obligations can (understandably) cause potential sellers to feel overwhelmed or out of their depth.  As practitioners, we frequently see vendors overlook their legal obligations in an effort to reach settlement as simply and expeditiously as possible.  Unfortunately, this can have the opposite effect and cause delays to settlement, or potentially cost the vendor the sale altogether.

If you are about to embark on this kind of journey we provide the following checklist for you to keep in mind and to avoid many of the usual pitfalls.

1. Are you selling a “small business”?

From May 2018 the definition of “small business” was amended to include the goodwill, plant, equipment and fittings of a business which is sold for less than $450,000.00.  If your transaction falls within this category then you must give the purchaser a Section 52 Vendor’s Statement before the contract of sale of business is signed. The statement provides information that a diligent buyer requires when considering whether to purchase the business.

If you are selling a small business and you do not give the purchaser a Section 52 (or the Section 52 you provide is inaccurate or does not include the prescribed particulars), then the purchaser can avoid the contract and any money paid by the purchaser under the contract must be refunded.

2. Can you obtain a right to occupy the business premises for the purchaser?

Most businesses operate from a leased premises.  Accordingly, most contracts will be subject to and conditional upon the vendor obtaining a lease of the premises for the purchaser.  This can be achieved one of two ways, either:

a) by the assignment (or transfer) of the lease to the purchaser at settlement; or

b) the landlord and purchaser entering into a new lease

Either way, the landlord’s consent to the purchaser leasing the business premises is required, so vendors may wish to give the landlord notice of their intention to sell the business during the early stages of negotiations.

3. Is the vendor named in the contract entitled to deal with the assets of the business?

It goes without saying that it is important to properly document the particulars of the sale.  While identifying the vendor may seem straightforward, we commonly see parties either struggle to or incorrectly name the vendor that is making the supply.  If you are unsure of your business ownership structure, we recommend that you consult with us, your accountant or financial advisor to confirm how the various components of your business are held.

4. Is the proposed settlement date achievable?

There are a number of elements outside the control of the parties that will impact on the completion of the sale once contracts are signed.  These include (but are not limited to) obtaining the landlord’s consent, arranging for an inspection of the premises with your local council and obtaining necessary registrations or licences.  As a result, vendors should be careful to nominate a due date for settlement that is achievable given the nature of their business.

Contact us

Of course, these are only a few of the issues that can arise during the sale of a business.  If you are thinking about selling your business, we encourage you to contact the Corporate and Commercial team at Coulter Roache to ensure your interests are protected.

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