Buying a business opens up new possibilities. However, you don’t want any nasty surprises. Without adequate preparation, you may find the seller changing terms at the last minute. In the worst case, you might buy the business only to be saddled with a hidden debt that eliminates the profits you expected to make. To help you avoid these problems, this article outlines five key points to consider when buying a business in Queensland.
Heads of Agreement
A heads of agreement is a proposal of key terms that both the seller and purchaser would like the sale contract to include. For example, the heads of agreement could include:
- settlement date;
- price and deposit; and
- conditions such as finance and transfer of lease.
A heads of agreement is usually a non-binding document. It will include a disclaimer that the proposal is not binding until both parties execute the formal sale of business contract.
The heads of agreement also helps reduce your legal costs. Negotiating the terms in advance makes it easier for your lawyer to write the sale of business contract.
Due diligence is a key step to buying a business in Queensland. It is a search of the business documents, equipment and premises. This helps you understand the business after signing the contract but prior to your purchase. The sale of business contract will usually allow you to back out of the sale if due diligence uncovers a serious issue. For example, an undisclosed debt.
You want to look at many things as part of your due diligence, including:
- the lease;
- development approvals and other council approvals or licences;
- employee agreements;
- existing third-party agreements (e.g. supply agreements); and
- the business’ financials for your accountant to review.
It’s also a good idea to check with the council on whether there are any specific requirements. In particular, whether you can operate the business out of the premises. Most Queensland leases make it your responsibility to investigate whether you can use the premises for the business.
In Queensland, the standard sale of business contract is the ‘Real Estate Institute of Queensland (REIQ) Sale of Business Contract’. It’s a good idea to use this contract when buying a business in Queensland so that you know you’ve covered the important terms. Key terms your contract will contain include:
- basic details of the business such as its location;
- the business assets included in the sale;
- any promises the seller has made to the purchaser;
- how the contract can be terminated in the event of a dispute;
- if the business also has a lease, how it will be transferred to the new owner; and
- how rent and utilities will be dealt with by both parties.
However, some contracts may need to include extra clauses or special conditions into your contract. For example, that the seller will continue to work at the premises for a fixed period of time post-sale. Getting these terms correct will avoid issues arising in the future.
Transferring your Lease
If your business purchase includes a lease, you will need to ensure that the landlord will agree to assign the lease over to you. If the lease is a retail lease, before consent can be given, the Retail Shop Leases Act 1994 (Qld) (the Act) requires that the landlord, assignor (business seller) and assignee (business purchaser) must follow the disclosure requirements.
Both the assignor and assignee must exchange a disclosure statement at least seven days before seeking the landlord’s consent. The landlord must also provide a disclosure statement and a copy of the lease to the assignee at least seven days before consenting to the assignment.
The Act also requires that:
- the assignee and the assignee’s lawyer sign a statement acknowledging that the assignee received legal advice about the lease; and
- the assignee and the assignee’s qualified accountant must sign a similar document to demonstrate that the assignee has received financial advice.
When buying a business in Queensland, you may need to pay transfer duty on the transfer of business assets. Business assets can include:
- a statutory business licence;
- the business name;
- a debt of a business if the debtor lives in Queensland;
- intellectual property; and
- personal property such as equipment.
Your contract will state which business assets are being transferred. You should check with your tax agent or accountant whether you will have to pay a transfer duty, and if so, how much. The Office of State Revenue in the Queensland Treasury has created a useful Transfer Duty Calculator.
The more preparation you do before buying a business in Queensland, the better chance you have of owning a profitable business. By considering issues such as heads of agreement, due diligence and lease transfers before negotiating the sale, you’ll avoid unwanted surprises.
If you’re looking into buying a business in Queensland, call LegalVision’s business purchase lawyers on 1300 544 755 or fill out the form on this page.
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