The process of buying and selling businesses in New South Wales has become so common that there are a variety of standard procedures and documents available to a business owner in order to execute the transaction. Along with deciding how much your business is worth and the best time to sell, there are a range of other considerations that you will need to make during this process. When you sell a business, it is important to note that there are various factors that will affect the transfer of ownership that will need to be considered. If ownership of a business is not effectively transferred to the purchasing party, this may cause some legal difficulties for you later on. In order to make sure that you are transferring all ownership of the rights, responsibilities and assets of your businesses, you must make sure that you understand what these items are and ensure that they are included in the standard contract for Sale of Business 2004. Assets that can be transferred during a sale of business may include:

  • Goodwill and stock in trade
  • Your intellectual property rights in the business name or logo
  • Leasehold interests. These interests may arise if there are business premises which you are currently leasing and you would like the purchaser to also use these premises once the business has been sold
  • Licenses and permits that the purchaser may need to conduct the businesses
  • Franchise agreements
  • Contracts with suppliers

Before exchanging contracts

Usually, a Standard Contract for the Sale of Business is used when businesses are sold or purchased. This contract contains extensive clauses that cover all legal requirements under Australian law. However, since all businesses are different, you may need to include extra clauses or special conditions into your contract. Special conditions can be added to the end of the contract and it is important that these conditions are drafted properly to avoid any uncertainty or confusion in the future. During this time the purchaser will also conduct preliminary searches of the business documents and premises to make sure that they are aware of all the matters involved with their purchase of your business.

Exchange of contracts

After all the negotiations have been made and the contracts have been signed by you and the purchaser, the contracts can be exchanged. It will be your responsibility to arrange for a time and place to exchange these contracts. The purchaser will usually give you a cheque for the deposit during the exchange of contracts. After the exchange, the contracts will be legally binding.

Pre settlement

During this stage, you will be required to fulfil a range of obligations outlined in your contract for sale. There are standard obligations that you must perform and then there may be obligations in the special conditions that you may also have to consider. Some standard obligations are as follows:

  • Transferring all documents so ownership can be transferred to the purchaser
  • Maintaining the goodwill of the company
  • Discharging securities, mortgages or any other encumbrances that  may be held over your business
  • Getting the lessor’s consent to transfer the lease to the purchaser

Settlement

At the settlement stage, there are certain documents that may need to be exchanged. You will have to provide the purchasers with a range of documents which pass ownership rights to them and the purchasers will provide you with bank cheques or deeds in return. For example, you may give the purchasers:

  • Share transfers
  • Share certificates
  • Appointment of directors
  • Approvals for share transfers
  • Items listed in the second schedule
  • A Director Resignation document

In exchange the purchasers may give you:

  • A bank cheque for the value of your business
  • A deed of guarantee if there is a lessor involved
  • A signed deed of guarantee by the purchasers

 

Post settlement

After the settlement of the sale of business, the purchaser will have a variety of tasks to complete in order to ensure that they have full ownership of the business. Your lawyer will also have to undertake certain tasks to make sure that you do not continue to hold responsibility over assets that have been transferred to the purchaser. These tasks may include:

  • Cancel any licenses or insurance that are held in your name in relation to the business
  • Send an order on the agent so that the deposit paid by the purchaser will be transferred to you
  • Your lawyer should also inform you of the settlement proceeds and the lawyer’s costs

Taxes including CGT, GST and other costs

A major concern when selling a business is the tax implications that this transaction may attract. Since business owners usually sell their business to generate revenue, it is useful to consider any taxes that may apply which may impact on the money you may end up with after selling your business. If you are registered for the Goods and Services Tax and you sell your business you may be liable to pay GST. However, if you sell your business as a going concern then this sale may not attract GST. If your business is being sold as a going concern:

  • You have agreed with the purchaser that the sale is of a going concern
  • The purchaser is registered for GST
  • You are supplying everything to the purchaser so they can continue operating the business
  • You will sell the business in return for payment
  • You intend to carry on the business until you sell it to the purchaser

If you sell your business and receive a profit, the profit you gain may be subject to Capital Gains Tax. This tax applies to any business assets, intangible assets such as intellectual property or goodwill. However there are tax concessions that may be available to you as a small business owner. The sale of your business may also be subject to stamp duty. However, the duty must be paid by the purchaser of the business.

Conclusion

While selling a business can be very exciting, the process can also be rather tricky. It is a good idea to get legal assistance during this time so that you are aware of all the risks, obligations and duties that you may undertake as a vendor. However, you must keep in mind that a business lawyer can only provide you with legal advice and not financial advice. If you require financial advice about how much you should value your business for, whether it is the right time to sell your business or any other financial matters you should speak with a financial advisor.

Lachlan McKnight

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