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The process of buying and selling a business in New South Wales has become increasingly common. There are now a variety of standard procedures and documents available to a business owner to execute the transaction. Along with deciding how much your business is worth and the best time to sell, there is a range of other considerations that you will need to make during this process. This article will outline what you must consider during the different stages of selling your business, from before the exchange of contracts, to the settlement stage and any tax implications you should note. 

Selling Your Business

There are many important things to consider when selling your business. You will first need to decide if you are selling the company itself (and therefore, selling the shares in the company) or just selling the business and its assets. You will need to have the business valued, which can be done by a business valuer. Once this process is complete, you will decide on an appropriate purchase price that you are willing to sell the business for. If a buyer has not already approached you directly, the process of selling the business will then involve advertising the sale, either through a broker or arranged by yourself. 

Transfer of Ownership

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 the ownership of a business is not effectively transferred to the purchasing party, this may cause some legal difficulties for you later on. To make sure that you are transferring all ownership of the rights, responsibilities, liabilities and assets of your businesses, you must ensure you understand what these items are and that they are included in the standard contract for Sale of Business 2015 (NSW).

Assets that you can transfer 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; and
  • 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 in your contract. Special conditions can be added to the end of the contract, and these conditions must be drafted properly to avoid any uncertainty or confusion in the future. During this time, the purchaser will also conduct preliminary searches, reviews and inspections of the business documents and premises to ensure that they are aware of all the matters involved with their purchase of your business.

Exchange of Contracts

After all the negotiations on the terms of the sale in the contract have been made, and you and the purchaser have signed the contracts, you can exchange the contracts. 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. Additionally, 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 company’s goodwill;
  • discharging securities, mortgages or any other encumbrances that may be held over your business; and
  • getting the lessor’s consent to transfer the lease to the purchaser.

Settlement

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

  • share transfers; 
  • share certificates;
  • appointment of directors;
  • approvals for share transfers;
  • items listed in the second schedule; and
  • a director resignation document.

In exchange, the purchasers may give you a:

  • bank cheque for the sale price of your business or the shares;
  • deed of guarantee if there is a lessor involved; and
  • signed deed of guarantee by the purchasers.

Post Settlement

After the settlement of the sale, the purchaser will have a variety of tasks to complete 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:

  • cancelling any licenses or insurance that are held in your name in relation to the business;
  • sending an order to the agent so that the purchaser’s deposit will be transferred to you;
  • finding out from your lawyer the settlement proceeds, as well as your lawyer’s costs;
  • ensuring you pay out staff leave entitlements unless the purchaser (the new owner) has agreed to take these on;
  • transferring any assets into the new owner’s name;
  • giving the new owner a list of passwords to relevant accounts;
  • handing over any stock or inventory; and
  • passing on the business client list.

Taxes – Including CGT, GST and Other Costs

A major concern when selling a business is the tax implications that this transaction may attract. Business owners usually sell their business to make money. Therefore, it is useful to consider any taxes that may apply, which may impact the money you 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; and
  • your intention is to carry on the business until you sell it to the purchaser.

If you sell your business and make a profit, the profit 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.

Key Takeaways

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 sale of 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, whether it is the right time to sell your business or any other financial matters, you should speak with a financial advisor. For assistance with the legal documents as you navigate through this process, contact LegalVision’s sale of business lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What are special conditions in a contract?

Special conditions can be added to the end of the contract. These conditions must be drafted properly to avoid any uncertainty or confusion in the future.

When are contracts legally binding?

After you have negotiated on the terms of the sale in the contract and you and the purchaser have signed the contracts, you can then exchange the contracts. Once the exchange of contracts has occurred, the contracts will be legally binding.

What tax implications should I be aware of?

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.

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