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Start Your Business Journey with Confidence
Business Purchase Lawyers in Toowoomba
Starting a new business is exciting, whether establishing your own enterprise or purchasing an existing business or franchise. While the process can be complex, having the proper legal guidance can make all the difference.
At CLO Lawyers, we’ll provide an overview of the essential steps in buying a business. Our commercial and business lawyers are the ideal partners for your business purchase journey.
The Advantages and Challenges of Buying a Business
Purchasing an existing business or franchise offers several advantages:
- Immediate Infrastructure and Cash Flow: Existing businesses provide an established infrastructure and immediate cash flow.
- Reduced Initial Setup Work: The groundwork has already been laid, which can save you time and effort.
However, it’s essential to consider the potential challenges:
- Expense: Buying a business can be a significant financial investment.
- Complexity and Stress: Without proper guidance, the process can be confusing and stressful.
Understanding the critical elements of the business purchase process will help you lay a solid foundation for your new venture and ensure that what you buy meets your expectations.
Why Choose CLO Lawyers?
At CLO Lawyers, our team of experienced business purchase lawyers is dedicated to simplifying the process and protecting your interests. We are committed to providing the guidance you need to achieve the best possible outcome.
Buying a Business
The purchase of a business is a significant endeavour requiring careful consideration and involving complex decisions and negotiations.
CLO Lawyers’ experienced team is here to help you through every stage of the process, from preliminary negotiations to final settlement.
Business Types: Sole Proprietorships, Partnerships and Companies
Any organisation conducting commercial activities to earn a profit is engaged in business. Businesses take various forms, from small, sole proprietorships to large corporations.
In the case of businesses owned by sole proprietors or partnerships, buying the business usually means buying its assets, such as equipment, inventory, customer contracts, and intellectual property. This is referred to as a business or asset purchase.
In a business asset purchase, you can take over all assets of the business or select which assets you actually require to operate the business.
When it comes to businesses owned by a company, the sale can be structured in one of two ways: an asset sale or a share sale. Each approach has unique characteristics that affect both the seller and the purchaser.
Buying a Business Owned by a Company: Asset Sale or Share Sale?
Understanding Asset Sales
An asset sale involves the purchase of specific assets of a business owned by a company, such as property, plant and equipment, machinery, stock, goodwill, and intellectual property. This option is generally the most common way to buy a small to medium-sized business.
In this scenario, the transaction occurs between the company and the buyer, with the seller retaining company ownership.
Because a buyer acquires assets used in the business and not the corporate vehicle that owns the business, they do not have exposure to future claims relating to the conduct of the business before the sale. Exceptions are accrued benefits of employees taken on by the buyer and liabilities that support the trade revenue stream acquired.
Key Features of an Asset Sale
1. Company Ownership
The seller keeps the company, transferring only the selected assets.
2. Documentation
The parties will enter into a business sale agreement documenting the assets being sold.
3. Asset Transfer
The buyer must meet the legal requirements for transferring the assets, which may involve third-party consent. ‘Registered’ assets, such as trademarks and business names, may require compliance with the requirements of the relevant regulator.
4. Liabilities
The buyer assumes liabilities related to the acquired assets.
5. Key Contracts
Contracts need to be assigned to the buyer, often requiring third-party consent. Some government licenses and permits are non-transferrable. In such cases the buyer must secure their own license or permit before taking over the business.
6. Employees Transition
The buyer must make new offers of employment to each employee and will assume all accrued entitlements (annual leave, long service leave).
7. Tax Considerations (GST, transfer/stamp duty)
Transfer duty applies if the sale includes land. GST may be exempt if the sale qualifies as a “going concern”. This means that the buyer must acquire everything necessary for the continued operation of the business.
Exploring Share Sales
In a share sale, the buyer purchases the company’s shares, acquiring the entire business, including all assets and liabilities.
In this instance, the transaction occurs between the company’s shareholders and the buyer of the shares. The ownership of the company changes.
Because a share sale involves taking over the company, completion of the share sale is typically conditional upon satisfying an extensive due diligence process. The sellers are normally required to provide comprehensive warranties and indemnities concerning the share sale.
Features of a Share Sale
1. Company Ownership
The buyer acquires the entire company, including its history and potential legacy issues.
2. Documentation
The parties will enter into a share sale agreement containing comprehensive warranties and indemnities.
3. Asset and Liability Continuity
All assets and liabilities remain with the company.
4. Assumption of Liabilities
The buyer assumes all existing liabilities, including those related to financial reporting and tax compliance.
5. Contractual Consideration
Most contracts will continue, though some may include “change of control” provisions that require the consent of the other party or in the worst case scenario, allowing termination of the contract.
6. Employee Continuity
Employees remain under existing contracts, inclusive of any employee liabilities.
Asset and share sales carry commercial, taxation, and legal risks that must be carefully evaluated. Understanding these risks is essential for sellers and buyers to navigate the transaction successfully.
Each approach offers advantages and disadvantages, and proper planning can mitigate risks to achieve the desired outcome.
Key Considerations Before Entering into an Agreement to Buy a Business
Business Asset Purchase Guidelines:
Deciding on the right structure for your business is crucial for tax minimisation and asset protection. The contract or agreement will specify how you are buying the business:
- Personally or in partnership
- Through a company you control
- Through a trust controlled by you or a corporate trustee
Each structure has unique legal requirements, liability limitations, and tax consequences. You must allow sufficient time available to establish the appropriate structure before entering into the contract.
Our team of business lawyers at CLO will collaborate with you and your accountant to recommend the best structure for your situation.
Contact us to make an appointment with a commercial and business team member to discuss your business legal requirements.
Ensure that all assets of importance (including intellectual property) are itemised in the contract.
Typical assets include:
- Goodwill
- Fixtures and fittings
- Plant and equipment
- Intellectual property
- Stock
- Work in progress
- Permits and licenses
If the seller intends to retain any assets, these should be expressly excluded in a special condition in the contract or schedule to avoid future disputes. The implications of these exclusions to the “going concern” designation of the purchase and potential GST consequences would also need to be addressed.
Goodwill is a vital component of a business. Protect it by ensuring the seller cannot open a competing business through a ‘restraint of trade’ clause in the contract.
This clause should prevent the seller from competing, assisting competitors, soliciting customers, interfering with employees or key suppliers, or using confidential information.
Intellectual Property (IP) can be one of a business’s most valuable assets. It includes patents, trademarks, and copyright. Ensure that all IP is included in the sale and that the seller is the sole owner.
The contract should include warranties and provisions for transferring IP.
The treatment of business stock varies by business. The contract should specify whether stock is included in the purchase price and how it will be valued.
Whether purchasing a business with an existing lease or subject to a new lease being issued, some key lease issues must be addressed before proceeding with the purchase.
These issues include the question of whether the lease payments are sustainable, the business can lawfully operate under town planning legislation, and the lease term (fixed term and options) is sufficient.
Due diligence is a buyer’s opportunity to evaluate a business to verify its value and confirm that what has been represented is true. It includes reviewing the business operations, it’s financial records and all legal documents.
Documents to review include licenses, contracts, leases, asset lists, details of financial liabilities, details of current or potential disputes and all financial records.
The issue of transferring or paying out accrued employee entitlements should be dealt with in the business sale contract to avoid unexpected liabilities and ensure a smooth transition.
Identifying and securing the necessary licenses and permits for operating the business is essential. Determine if licenses are transferrable or if new licenses are needed.
Buyers must ensure that business liabilities are clearly outlined in the contract. This includes business debts, supplier liabilities, employee entitlements, warranty claims, and current or potential litigation.
Identifying and securing the necessary licenses and permits for operating the business is essential. Determine if licenses are transferrable or if new licenses are needed.
Key elements include:
- Assets: Ensure all critical assets are itemised and transferred.
- Stock: Specify how stock will be handled and valued.
- Goodwill: Include protections such as non-compete clauses.
- Employees: Address essential employee retention and entitlements.
- Premises/Lease: Ensure the business can operate lawfully from the premises.
- Licenses and Permits: Verify the necessary licenses and permits.
- Liabilities: Outline any debts or liabilities.
Why Use CLO Lawyers for Your Business Purchase?
Our commercial and business lawyers are experts at identifying and mitigating risks in business purchases.
Engaging a lawyer may seem costly, but it protects your investment and can significantly impact the success of your business.
Here’s why you should choose CLO Lawyers:
- Expertise:
We have extensive experience in business purchases, ensuring all legal aspects are covered.
- Comprehensive Support:
We provide complete support from structuring your business to conducting due diligence.
- Risk Mitigation:
We help identify and mitigate risks that can derail or destroy a business purchase.
- Tailored Advice:
Our advice is tailored to your needs, ensuring the best outcomes for your situation.