Key Legal Steps When Buying or Selling a Business: What You Need To Know

 

KEY TAKEAWAYS:

• Legal advice is essential when buying or selling a business to avoid costly mistakes and ensure a smooth transaction
• Vendors and Purchasers have different legal considerations, including valuation, due diligence, and regulatory compliance.
• Tailored Contracts of Sale are crucial to protect intentions and meet legal requirements.
• Experienced legal support helps navigate complex legal processes from initial steps to final settlement.

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Buying or selling a business in Australia is more complex than just signing a contract and handing over money. It involves understanding various legal, financial, and regulatory requirements. Overlooking these elements can lead to costly mistakes or even failed deals. This guide covers a number of matters that can help buyers and sellers navigate legal processes and ensure a smooth and compliant business transaction.

 

Sale Structure: Asset Sale vs Share Sale

One of the first decisions parties must make is whether the transaction will be structured as an asset sale or a share sale. In an asset sale, the buyer selects specific assets such as equipment, goodwill, and inventory, and the seller retains liabilities. This structure offers flexibility and is commonly used by small businesses. In contrast, a share sale involves the buyer acquiring the entire company, including all assets and liabilities, which is often more straightforward when continuity of operation is important.

 

Due Diligence and Legal Review

Conducting legal due diligence is crucial before finalising the transaction. This involves reviewing matters such as financial records, tax liabilities, commercial contracts, employee obligations, and any pending litigation. The aim is to identify and manage any legal or financial risks that could affect the viability of the sale.

 

Licensing and Regulatory Requirements

Depending on the nature of the business, specific licenses or permits may be required. These might include liquor licenses, food safety permits, or childcare approval. It is important to confirm whether these can be transferred or will require a new application. Failing to address these issues early may delay or jeopardise the transaction.

 

Commercial Lease Considerations

If the business operates from leased premises, the terms of the lease must be reviewed. This includes checking essential terms and make-good obligations. Landlord consent is often required to transfer or assign the lease to the buyer.

 

Employee Transitions

Managing employee rights and obligations under the Fair Work Act 2009 will be a key aspect of the sale. The parties must decide whether staff will be retained, terminated, or transferred. Leave entitlements, superannuation, and continuity of service must also be addressed. Poor handling of staff transitions can result in disputes or claims.

 

Tax and Financial Implications

Business sales can have significant tax consequences. These may include capital gains tax, goods and services tax (GST), and stamp duty. In some cases, small business tax concessions may be available. Engaging a tax professional early can help manage liabilities and reduce the overall tax burden.

 

Drafting the Business Sale Agreement

The business sale agreement is the core legal document that outlines the terms of the transaction. It should cover matters such as the purchase price, assets being transferred, restraints of trade, and completion conditions. A well-drafted agreement helps prevent disputes and ensures both parties understand their rights and obligations.

 

Settlement Process

At settlement, legal ownership is transferred, and payment is finalised. This stage may also involve satisfying any preconditions, transferring licenses, and registering documents. A lawyer plays a crucial role in coordinating these steps and ensuring nothing is overlooked.

 

Post-Settlement Handover

Even after the sale has been completed, some obligations continue. These may include obligations in relation to:

• transferring business names;

• IP rights;

• client accounts, and

• assisting with training or operational support.

Having a clear post-settlement plan promotes continuity, avoids disputes, and protects goodwill.

 

Why Engage a Commercial Lawyer?

Navigating the legal complexities of buying or selling a business without expert guidance can be risky. A commercial lawyer ensures the transaction is compliant, efficient, and aligned with your goals. From early negotiations through to settlement and beyond, professional legal support can make all the difference to your transaction outcome.

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