There are a number of important legal considerations that you need to take into account when looking at buying a manufacturing business to ensure the perpetuity of the business’ ongoing operations once you have reached settlement. This article will look at some of the more pressing issues to consider with your business solicitor before you enter into any Agreement to buy a manufacturing business.

State Government Approvals & Local Government Licences

Firstly, ask your business solicitor what kinds of licences/approvals you may need to obtain from the relevant local government bodies to operate the business. Your business solicitor should also make enquires into which licences/approvals are currently held by the business, whether they can be transferred, and how easy (or difficult) it will be to carry out the obligations contained in each licence/approval.

There are many regulations contained in both local and state legislation relating to manufacturing businesses. These include laws relating to Workplace Health and Safety, fire safety, and environmental preservation, such as noise and wastage control. It is not uncommon for a manufacturing business to need several licences before they can even legally operate. It is, therefore, extremely important that your business solicitor draft into the contract a special condition that makes the completion of the sale contingent on having all approvals/licences pre-approved or transferred. 

Plant, Lease and Equipment

Are you being assigned an existing lease? Or, are you planning on having your business solicitor draft a new lease? Either way, you’ll need to determine the suitability of the site for the running of the business. By including this condition into the contract, you’ll ensure the floor load bearings and structural integrity of the building are in reasonable condition. In addition, since the equipment and plant of most manufacturers includes large fixtures, have your business solicitor review the term of the lease, specifically whether or not any renewal terms need revising.

Another important detail you will want to discover upon inspection of the premises is the condition of any plant or equipment, whether or not any reparations are necessary, and how long the equipment has been in use. Who will do the repairs if need be? Are parts available in Australia? Finally, have your business solicitor enquire into the transferability of any warranties attached to the equipment.

Your business solicitor should also insert a special condition that allows you to have all equipment and plant professionally examined. This ensures that the contract will be subject to your approval that the site is suitable for its ‘intended purpose’. On top of this, your business solicitor should draft an additional special condition that makes the completion of the contract contingent on your approval of the current (or newly-drafted) lease.

Protecting Intellectual Property

Intellectual property is one of the most valuable assets for carrying on an established business. Be certain about the intellectual property you are potentially purchasing. You need to ascertain whether or not you’re being transferred all intellectual property, and if not, what has not been included and why. Have your business solicitor include a special condition that requires all intellectual property to be transferred upon the sale of the business, where possible.

Supply and Distribution

It is always more convenient to continue the Supply and Distribution Agreements currently held by the seller. Having said this, if the contracts are not in the appropriate form i.e. not in writing, are not transferable, or do not sufficiently address your interests, your business solicitor may need to draft new contracts altogether. What are the conditions attached to the agreement? Are the agreements exclusive? Will this limit your capacity to trade with different suppliers/distributors in the future?

The contract should include a special condition that requires your satisfaction of the agreements in their current form or ensures newly drafted agreements are negotiated between you and the other parties to the agreements.

Conclusion

An experienced business solicitor can help you avoid common errors when purchasing a manufacturing business and should be consulted before signing any contracts. For more advice, contact LegalVision on 1300 544 755 and ask to speak with one of our team of business solicitors.

Lachlan McKnight

Next Steps

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