There are many ways that you can sell a business. One way is the sale of a business as a going concern. Mainly, this involves the sale of a business that includes everything required to continue operating the business. This differs to a business which is not sold as a going concern where, for example, the purchaser may:

  • only receive the plant, equipment and client lists; and
  • run the business under a different name and from different premises.

This article discusses what a sale as a going concern is, providing three key considerations to make when selling a business as a going concern.

What is a Going Concern?

A sale of a business as a going concern involves the seller (the vendor) selling their business to the purchaser together with all of the things that are necessary for the purchaser to continue operating the business. The vendor must also keep running the business up until the day of sale (the settlement date).

The sale price of a business sold as a going concern may be exempt from paying Goods and Services Tax (GST) if the following criteria are met:

  1. payment or consideration is made for the sale of the business;
  2. the purchaser is registered for GST;
  3. the vendor and purchaser have agreed, in writing, that the sale is of a going concern; and
  4. the vendor supplies all things necessary for the continued operation of the business and carries on the business until the day of sale.

For example, you purchase a cafe for $50,000 in Surry Hills. The sale of business agreement (SOBA) between you and the vendor states that the sale is of a going concern. The vendor operates the cafe until the settlement date and you are registered for GST. On the settlement date, the vendor provides you with all of the cafe assets, including:

  • the equipment;
  • transfer of lease; and
  • supply accounts to run the cafe.

In this situation, the purchase price would be GST exempt as the business was sold as a going concern.

3 Key Considerations When Selling a Business as a Going Concern

There are three key considerations to make when selling your business as a going concern. It is vital to ensure that you:

  1. receive appropriate legal advice;
  2. continue to run the business; and
  3. seek taxation advice from a tax professional.

1. Legal Advice

If you are selling a business as a going concern, it is essential that your SOBA:

  • states that the sale is a going concern; and
  • includes the appropriate GST promises to satisfy the relevant tax law.

A sale of business lawyer can help you prepare your SOBA, ensuring it includes the appropriate clauses that comply with the law.

2. Continue Running the Business

Until the business is transferred to the purchaser on the settlement date, it is crucial that the vendor:

  • stay in possession of the business and its premises; and
  • ensure the business continues to run as a going concern.

This obligation may be included as a pre-completion obligation in your SOBA. Not fulfilling this obligation may lead to a breach of contract.

3. Taxation Advice

Before selling any business, it is important to obtain taxation advice from a tax professional. Your accountant will be able to provide advice relevant to the sale of your business satisfying GST  requirements. They will also be able to assess other financial considerations that may apply to the sale, such as:

  • capital gains tax; and
  • how to apportion the purchase price against the assets of your business.

Key Takeaways

If you are considering selling your business, you will need to decide if you are selling the business as a going concern. However, merely ticking a box on the SOBA will not be enough to be considered a GST exempt sale. As the vendor, you will need to satisfy specific criteria to comply with the relevant GST legislation, including:

  1. payment for the business;
  2. ensuring the purchaser is registered for GST;
  3. agreement in writing that the sale is of a going concern; and
  4. supplying what is necessary for the operation of the business and operating the business until the settlement date.

If you have any questions, contact LegalVision’s sale of business lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is a Going Concern?

The term ‘going concern’ refers to the sale of a business where a business owner sells their business to a purchaser, with everything that is necessary for that purchaser to continue operating the business.

Is a Business Sold as a Going Concern Exempt from GST?

The sale of a business as a going concern may be exempt from GST if they payment is made for the sale of the business, the purchaser is registered for GST, you have agreed in writing that the sale is of a going concern and you supply all things necessary for the continued operation of the business.

When Selling a Business as a Going Concern, Do I Need to Continue Operating the Business Until the Date of Sale?

Yes. Until you transfer the business to the purchaser on the settlement date, you must stay in possession of the business and ensure that it continues to run.

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