If you are looking to purchase a dance business, it is easy to get caught up in the excitement of setting up the studio and overlook critical steps in the process. Before you start offering classes, you should first consider the following:
- the sale of business agreement;
- working with children; and
1. The Sale of Business Agreement
The Sale of Business Agreement (SOBA) is the contract between the purchaser and the seller of a business that outlines the details of the sale, including:
- what assets form part of the business sale;
- the purchase price for the business;
- the seller’s promises about the business;
- the requirements to complete the sale; and
- any special conditions related to the sale.
Before signing the SOBA, you must conduct financial and legal due diligence on the business you intend to purchase. The process will help you determine the following:
- the business structure and current ownership of the business and assets;
- the past and present financial performance of the business;
- whether the business has any outstanding debts or liabilities or if the assets are subject to registered security interests; and
- whether certain assets, such as equipment, are in proper working order.
The seller usually draws up the SOBA and sends it to you, the purchaser, to review before signing. When you receive the SOBA, ensure that all the details are correct.
In addition, you should look out for a few key terms.
Key Terms Checklist
You should confirm the purchase price in the contract is what you agreed to pay for the business. In most standard business sales, the purchaser pays a 10% deposit to the seller on signing the contract and then the remaining balance when the sale is complete.
Confirm that the seller will transfer the equipment the business uses as part of the sale. Also ensure that the equipment is in good working order.
The seller should transfer the:
- business name;
- registered trademarks; and
- domain names (assuming you intend to operate under the same brand).
You may also intend for the seller to transfer any potential choreography and costume designs the business owns.
Contracts with Third Parties
Ensure that any third party contracts can be assigned to you.
Ensure the current owner of the business introduces you to the existing customers and suppliers of the business.
You should decide which employees you intend to take on and ensure the seller pays their previous entitlements.
Social Media Accounts
Ensure the SOBA explicitly transfers the business’ social media accounts to you. Some standard contracts neglect to do this.
Most purchasers require a period of training before and after completion of the sale. This is particularly important if you are unfamiliar with the business and the industry. You will want to ensure the SOBA requires the seller to give you proper training.
You should review the lease for the business premises and determine whether you require a lease transfer or a grant of a new lease.
Executing the SOBA
Once the parties have negotiated and agreed on the SOBA, the contract is ready for exchange. You and the seller will sign the SOBA contracts, and both of you will receive copies of the signed contracts for future reference. At this point, the purchase is now legally binding. After the exchange is complete, you and the seller will need to carry out the steps to complete the sale, which is known as settlement or completion. Settlement includes making the final payments to the seller and carrying out the handover of equipment and other assets, as well as transferring:
- intellectual property;
- any employees; and
- the lease (or grant of a new lease).
The dance studio’s physical premises is the most important aspect of your business. When buying a studio, it is important that you review the lease agreement to understand how the seller can transfer the lease. Typically, there are two options available. You can:
- assign the current lease, or
- negotiate a new lease with the landlord.
The seller must also ask the landlord whether they are permitted to assign the lease to the new business owner. Whether you can request an assignment depends on if the lease is commercial or retail. Creative spaces such as dance studios are typically commercial premises. The right to assign depends on the terms contained in the lease agreement.
Importantly, you should confirm that operating a dance class is a permitted use of the premises. Also, does the studio have the right equipment and if not, can you fit it out yourself? For example, (depending on the style of dance) with:
- sprung Tarkett floors;
- ballet barres;
- silks; or
Ensure that either the SOBA or the fit-out term in the lease are drafted to include this equipment.
You should look into what types of insurance are necessary to operate a dance studio. While standard public liability insurance is important to any business, it usually does not cover sporting activities such as dance instruction and performance. An insurance policy will help cover you for any student that is injured while dancing in one of your classes. You may also consider either:
- professional indemnity insurance which protects the advice and instruction your teachers and coaches provide; and
- management liability insurance which protects the operation of the business. For example, directors’ duties if you decide to operate the studio as a company.
Regardless of the styles of dance you specialise in, a diverse range of music is necessary when running a dance studio. Unless you compose the music used in your studio, you will likely rely on copyrighted music. Copyright extends to playing music in a public place. Day to day activities of a dance business such as rehearsals, eisteddfods or public performances may infringe on the copyright owner’s rights. Dance studios and schools can purchase licenses for the use of copyrighted music for the following:
- dance classes;
- end of year concerts and performances;
- reproduce music for your students; and
- recordings of performances for your students.
Fortunately, you do not need to call Justin Bieber directly to obtain a copyright licence. You can apply for blanket licenses from either the:
- Australian Recording Industry Association (ARIA);
- Australasian Performing Right Association (APRA); and
- the Phonographic Performance Company of Australia (PPCA).
5. Working with Children
Most studios will offer classes to children, teenagers and adults. You may need to register your dance studio and ensure your teachers and staff are compliant with Working With Children Checks. These can differ depending on the state your dance studio is located.
Individual teachers are responsible for updating their WWC. However, it’s also up to you as the studio owner to ensure they are updated, and remove any non-compliant teachers from contact with children. If you intend to record any classes or performances or take any photos, your students (or the parents of any students under 18) will need to provide written permission.
If you intend to hire dance teachers, you will need to think about the nature of your legal relationship. As an employer, you will have different obligations to your teachers, depending on whether they are an employee or a contractor. Regardless, you should consider whether your business or the individual teachers own any intellectual property such as choreography or costume design. Employers typically include a clause in the employment or contractor agreement addressing who owns the intellectual property.
Another point to consider is whether the business or the individual will be responsible for teacher accreditation and who will cover the cost of the accreditation.
Although there are a number of issues to consider when buying any business, you should understand those that are unique to purchasing a dance studio. Ensure you have the legalities in place to secure the sale of the business, the fit-out of the commercial premises and the appropriate copyright licences in place. If you have any questions or need assistance drafting a SOBA, get in touch with LegalVision’s business purchase lawyers on 1300 544 755 or fill out the form on this page.
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