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Selling your online business is a major financial and commercial decision. You may wonder how to find a buyer and negotiate the commercial terms. Once you have negotiated the commercial terms of the sale, you will need to complete the legal process. This article will explain some of the key considerations you should have when the time comes to sell your online business.
Due Diligence
As the seller of an online business, you should expect your prospective purchasers to make enquiries about business operations when conducting their due diligence. As part of this process, buyers will want to look at the business’:
- financial information;
- business performance;
- legal compliance;
- major contracts; and
- assets that will be included in the sale.
As the seller, you should be prepared for the purchaser to request this information and be able to assist them.
If there are any contracts which are vital to the business’ operations and performance, you should check if you can assign these to the purchaser. You will need to seek the consent of any third parties that you have engaged, such as suppliers or software developers, before you can assign these contracts to the purchaser.
Sale of Business Process
The key differences between selling online and physical businesses are that:
- it is unlikely that an online business will be leasing a shopfront or office space; and
- there are generally less physical assets to be transferred for an online business.
However, in terms of the legal documentation and process, the process for selling either type of business is relatively similar. After you have negotiated the key commercial terms, there are usually three stages involved in selling an online business:
- preparing the sale of business contract;
- negotiating, finalising and signing the sale of business contract; and
- settling the purchase of the business.
What Assets Does The Sale Include?
The assets included in the sale will likely vary depending on the nature of the online business that you own.
Intellectual Property (IP)
IP is crucial to any business. For online businesses, it generally consists of the business’:
- name;
- domain name;
- social media handles;
- trade marks; and
- website content.
An important aspect of selling your online business is confirming that you are the legal owner of any IP assets you are proposing to sell to the purchaser.
You will need to check your agreements with the relevant service providers to determine what IP arrangements exist. You can then advise the purchaser on how the sale will affect any IP.
E-Commerce Business
For most e-commerce businesses, a supplier manufactures and provides the stock that you display on your website. In some cases, the stock price will be an additional cost to the purchase price. A purchaser may wish to complete a stock take before settlement to ensure that they are satisfied with the quantity and quality of stock.
The sale contract should specify that the supply agreements you have in place regarding stock are to be transferred to the purchaser as part of the sale. Depending on the terms of the supply agreements, you will most likely need to obtain the consent of the supplier before you can transfer the contracts to the purchaser.
Software Business
If you are selling a software business, the main assets of the business are the software and apps that your development team and product team have created. Many software businesses use software which was created by third-party developers.
In some instances, your business may have a licence agreement in place with developers to use their code, but the business does not have ownership of that code. If this is the case, you will need to assign the agreement you have in place with the developer to the purchaser. The developer will likely have to consent to any assignment before it can take place.
Client Information
Existing customers are important to any business. If your online or e-commerce business has a customer list or database, the sale should include this list.
Privacy Considerations
A small business that is transferring its customer database will need to comply with the Australian Privacy Principles (APP). There are specific requirements that apply to the transfer of personal information during a business sale. Ensure that you comply with these requirements during the sale so you can effectively transfer the customer database to the purchaser.
Generally, a seller will not need to seek consent from the customers of the business to transfer their personal information if:
- the purchaser is an APP entity (or about to become one as a result of the purchase);
- you are selling the business as a going concern; and
- the purchaser plans to use the information in the same way and for the same purpose as you.
However, in certain circumstances, you may have to obtain customer consent. This is often the case where the purchaser could use customer information in a new way after the sale.
Key Takeaways
Legally, selling an online business is similar to selling a physical business. The primary difference is that most of the transferable assets are made up of the intellectual property of the business. This IP can include branding, content, social media and software.
When selling an online business, key considerations to keep in mind include:
- what assets the sale includes;
- what important contracts the business has (such as supplier contracts, terms & conditions with customers, privacy policy, website terms of use);
- who owns the IP of the business; and
- whether you need your customers’ consent to transfer their information to the purchaser.
If you have any questions about selling your online business, contact LegalVision’s business purchase lawyers on 1300 544 755 or fill out the form on this page.
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