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Buying or selling a business transfers far more than a name and a set of keys. Staff, leases, equipment finance and goodwill all move under the contract, and each carries its own legal rules. Our business purchase lawyers and business sale lawyers can act for either the buyer or the seller of established Brisbane and Queensland businesses.
Engaging a lawyer early in negotiations, and before signing, gives you the most protection. We prepare the due diligence clause, check the contract dates and list the information you will need. We also make sure every asset you expect to receive is described in the contract.
The size, turnover and complexity of a business affect how long due diligence takes. If we are involved early, we can build realistic time frames into the contract.
The first question is what is actually being sold, because the answer changes the whole transaction.
In an asset sale, the buyer acquires the business assets, such as equipment, stock, goodwill and the business name. The seller’s company or trust stays with the seller, along with its history.
In a share sale, the buyer acquires the shares in the company that owns the business. The company keeps everything, including its contracts, its debts and any past liabilities.
Most small business sales are asset sales. Share sales call for deeper due diligence, because past problems stay inside the company. The structure also affects tax and duty, so your accountant should be involved from the start.
The contract should contain warranties from the seller about the business. Typical warranties cover the accuracy of the financial records, the absence of disputes and the condition of equipment. If a warranty proves false, the buyer may claim compensation after settlement.
Stock is usually counted on the day before settlement and paid for on top of the price. The contract should set a maximum stock value, so the buyer is not forced to fund an unexpected amount. Plant and equipment should be listed item by item, with any leased items identified.
Business equipment is often financed. A lender or supplier may have registered a security interest over it on the Personal Property Securities Register. This can cover vehicles, machinery, stock, or all of the seller’s present and future property.
If a registered interest is not released, the secured party may be able to claim the asset after settlement. That can happen even though a buyer may have paid the seller for it.
We search the register against the seller and any serial numbered goods. The contract then requires the seller to provide releases at or before settlement. These interests are governed by the Personal Property Securities Act 2009 (Cth).
If the business trades from leased premises, the lease usually cannot pass to you without the landlord’s consent. This is a separate step from reviewing the lease, and often the slowest part of the sale.
The landlord will usually ask for financial information, references and a guarantee from they purchasing entity. Many also require a new bank guarantee before settlement. The contract should be conditional on the landlord consenting on acceptable terms. Without that condition, you could be bound to buy a business with no right to its premises.
For a retail shop lease, the Retail Shop Leases Act 1994 (Qld) governs the assignment process.
Whether you are buying, selling, or restructuring a business, our experienced commercial lawyers are ready to assist you with practical legal advice and responsive support. Contact A.L.F. Lawyers today to discuss your commercial transaction.
Many businesses depend on a licence held by the seller including liquor licences, food business licences, transport accreditation and trade licences. Some can be transferred with approval, while others must be applied for afresh by the buyer. The contract should be conditional on the buyer obtaining every licence it needs to trade from the Settlement Date. Noting that a failure to do say may also have GST implications.
Buying into a franchise, whether new or from an existing franchisee, adds the franchisor to the transaction. The Franchising Code of Conduct requires the franchisor to give you a disclosure document before you sign. You also have a cooling off period after entering a new franchise agreement. The franchise agreement often matters more than the sale contract, because it controls fees, territory and renewal.
Sometimes part of the price is paid after settlement. Under vendor finance, the seller lends part of the price to the buyer. Under an earn out, part of the price depends on how the business performs after the sale. Both need security for the seller and clear measurement rules for the buyer. Otherwise they become a source of dispute.
A buyer pays for goodwill, which largely means the seller’s customers and reputation. A restraint of trade stops the seller from opening a competing business nearby soon after the sale.
A restraint must be reasonable to be enforced. Courts look at the area, the period and the activities covered. Many contracts set out alternative areas and periods. A narrower restraint can then apply if a wider one fails. For sellers, the restraint should be clear and limited to what the sale genuinely requires and it will not be prejudicial to either party.
Before selling, be clear on your objectives and on the role, if any, you want after the sale.
Early advice helps define what is included in and excluded from the sale. We can also identify the information a buyer will seek during due diligence. Preparing it in advance can shorten the time needed to complete the sale.
A business sale can include trade marks, property, machinery, licences, leases and contracts with suppliers, staff and customers. We work with you to set out each component you intend to sell.
In many sales, the buyer’s solicitor prepares the contract. Even so, we can draft special conditions so that key parts of the sale reflect your wishes. Where a buyer will see confidential information, we can prepare a confidentiality agreement and a process for screening buyers.
We quote a fixed fee once we understand the business being bought or sold. The quote sets out each step we will take. The scope depends on turnover, staff numbers, the business structure, existing contracts and intellectual property. The other party’s requirements also affect the time involved. If the scope changes, we tell you before any extra cost arises.
