Doing Business Badly: Buying a Business But Not The Trade Mark

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Table of Contents

• Brand Loyalty, Business Goodwill and Trademarking
• Buying a Business? Buy the Trade Mark!
• What Happens if I Don’t Buy the Trademark?
• What to Watch Out for?
• Conclusion

Small to medium enterprises are the backbone of Australia’s economy. According to the Australian Bureau of Statistics, over two million businesses are currently trading. That’s enough to form the entire spinal cord of at least sixty thousand Australians! 

Buying a business is an exciting and, at times, daunting first step to take. The process is comparable to Hercules fighting the Hydra – unexpected obstacles rear their ugly head at each turn. Crucially, you should consider whether or not the business owns a trade mark and if so, whether it is included with the purchase. We will explain below why it is important to ensure you are also buying trade mark rights.

Brand Loyalty, Business Goodwill and Trademarking

Your business’ success is built on a combination of factors: innovative products, excellent service, efficient administration and a dedicated team to name a few. Irrespective of how revolutionary your product or service, customers will not flock unless you have a strong brand. 

A brand is your business’ outward symbol, and will be what pulls in your clients. Trademarking a successful brand’s name or logo ensures that no copycats can use your name and deceive your customers into believing they are receiving the same service.

Buying a Business? Buy the Trade Mark!

When purchasing a business, you buy not only the business’ equipment but also, its goodwill. A business’ brand or trade mark intrinsically links to its goodwill. Failing to purchase the trade marks will lose you the right to do business under an established brand.

What Happens if I Don’t Buy the Trademark?

If you don’t confirm that you are also purchasing the trade mark along with the business, the previous owners retain the right to use the trade mark. They could continue to use the trade mark and would have rights to stop you using the name. 

What to Watch Out for?

1. Check that the entity you are buying is the entity that owns the trade mark. If another entity owns the trade mark you want to use, you need to enter into a separate agreement to purchase the trade mark or ask that the entity transfers it to the business you are buying.
2. Check that the Sale of Business Agreement explicitly stipulates that the trade mark is part of the sale. If you are not sure whether it does, seek legal advice.
3. Check that the Sale of Business Agreement gives you, the business purchaser, the exclusive right to use the trade mark.

Conclusion

It is essential that you follow these steps and thoroughly complete your due diligence. Doing so ensures that you don’t buy the physical assets of a business without the ability to capitalise on the goodwill and brand loyalty built up by the previous owners. 

Don’t get caught out and if you are concerned, seek help from a specialist business purchase lawyer to ensure you get what you pay for. If you have any questions and require advice drafting a Sale of Business Agreement, please get in touch. LegalVision’s experienced team of business lawyers would be delighted to assist.