RMB Articles

Buying a Business Requires Careful Consideration

Posted 21-10-2019
Written by admin 101

A common way to buy or sell a business is through an asset sale where the purchaser buys the assets needed to continue to run the business from the vendor through a Sale of Business contract. RMB Commercial Lawyer explains the key concepts:

Purchase Price & Stock
The purchase price will normally include the plant and equipment and goodwill of the business. It’s also important to distinguish if the purchase price is inclusive or exclusive of stock-in-trade, which are items the business sells to consumers.

Lease
A crucial element of a sale. Without the lease a purchaser may buy a business but not be able to continue to operate it at the premises. Generally, the contract should be subject to the landlord consenting to assign the current lease or grant a new lease to the purchaser.

Franchise
If the business is a franchise the purchaser needs the franchisor’s consent to operate the franchise. The contract should also be conditional on this happening.

GST
The transaction is generally exempt from the Goods and Services Tax if the business is a going concern. This occurs if the sale includes everything that is necessary for the continued operation of the business and if the business is carried on by the vendor until the day of sale and afterwards by the purchaser. It’s important to obtain financial advice to be to determine any tax implications.

Employees
Generally, the employees of the business are either terminated or transferred to the purchaser who offers them employment on no less favourable terms. It’s important to obtain disclosure about accrued employee entitlements such as annual leave, personal/carers leave or long service leave.

Restraint of Trade
The purchaser may require the vendor to agree to a restraint of trade which prevents the vendor opening a competing business after the sale. Often restraints will have a distance from the business premises and a time period. Its important to seek advice on a restraint to ensure it is reasonable and enforceable.

Training
The Purchaser may want training from the Vendor to learn the ins and outs of the business. Training can occur after a deposit is paid, but before completion of the purchase or after completion or even at both stages.

Overall, there are lots of different parts and considerations for a sale and purchase. RMB Lawyers are here to guide you through the process and assist with a smooth transition out of and into running a business.

If you are considering buying a business or even selling a business and have a question, please  contact us. We'll be able to help you via a quick phone call, or ask us a question via email.