Deciding to go into business for yourself can be a life-altering decision. Some opt to build their business from the ground up, spending months or even years developing an innovative business concept and acquiring the cooperation of key players. Others choose to purchase a business and enjoy the many perks and benefits that come along with acquiring an established company. There are considerable advantages to purchasing a ‘ready made’ business. Most notably the acquisition of the businesses intangible assets – namely its generous pool of goodwill. Many of us have purchased and sold property before, but seldom have be purchased a business. While the purchase of a business is akin to the purchase of real estate, the process is far more complex. As such, it is important for any prospective business owner to know the steps involved. Here is a snapshot of the process!

Pre-purchase considerations

Before deciding to purchase a business it is important to engage professionals to undertake a pre-purchase evaluation of the same. Most of us aren’t savvy enough to evaluate a company’s future earning capacity, asset worth and hidden liabilities. Professionals such as lawyers, accountants and business analysts will be able to discern the true value of a business and make an informed recommendation as to the price offer that should be made.

Searches

Having decided that you wish to go ahead with the purchase of the business, it is highly recommended that you engage a lawyer to peruse the contract, oversee the transfer and undertake any and all relevant searches. In particular a lawyer may have to:

  • Search the ASIC register to determine whether the vendor has the capacity to sell the business.
  • Conduct a bankruptcy search in order to ascertain whether there are any creditors.
  • Search for any causes, writs and orders that may result in the acquisition of liability post sale.
  • Obtain a title search for the business premises, if any, to check for the existence and validity of any leases, mortgages, caveats etc.
  • Obtain a section 149 zoning certificate to ensure that the land, if any, is being used for permissible purposes.
  • Obtain development approval from the local council, if necessary.
  • Arrange financing for the purchaser, and
  • Check the Personal Property Securities Register for any registered security interests that have been taken out over the assets or the intellectual property, which form part of the sale.

Exchange

Once all the necessary searches have been conduced your lawyer will affect an exchange of contracts. An exchange of contract occurs when the vendor’s and purchaser’s counterpart contracts are executed and the deposit is paid. At this point in time the contract for the purchase of business becomes legally binding upon both parties. Please note that the deposit paid is usually held on trust by the vendor’s lawyer or with a third party agent.

Preparing for settlement

Once an exchange of contracts has occurred, it’s time to start preparing for settlement. Settlement is the final stage of the purchase process whereby ownership of the business is transferred from the vendor to the purchaser.

Leading up to settlement your lawyer will be responsible for:

  • Ensuring that all necessary documents allowing for the transfer of title to the items forming part of the sale are executed.
  • Ensuring that the vendor is in the process of discharging any existing mortgages, security interests, charges or other encumbrances.
  • If a lease is being assigned, ensuring that the landlord consents to the transfer of the lease.

Before settling the purchase of a business, your lawyer will make all the necessary adjustments to the income and outgoings of the business, thereby calculating the final purchase price. You as the purchaser are entitled to, and liable for all the profits and expenses of the business from the date of settlement. Similarly, the vendor is liable for the all income and expenses of the business prior to settlement.

Settlement

At settlement your lawyer will obtain all the necessary titles, licences, documents, keys etc and will payout the remainder of the purchase monies. Thereby successfully transferring ownership of the business from the vendor to you. Post settlement, they will concern themselves with lodging any necessary documents with ASIC and/or the Land and Property Information office.

Conclusion

The above is only a brief snapshot of the steps involved in purchasing a business. If you are unfamiliar with it, the process can be long, complex and overwhelming. The potential for acquiring hidden liabilities and defective titles is a real concern and may ultimately impede your ability to run a successful business. Don’t leave such an important process to chance.

LegalVision has a team of great Commercial lawyers who can assist you. Please call our office on 1300 544 755 and our Client Care team will happily provide you with an obligation-free consultation and a fixed-fee quote.

Vanja Simic

Next Steps

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