The steps during sale or purchase of a business are:
- Preliminary Steps
Once you have found a suitable business to purchase steps will need to be taken to verify all aspects of the business. Terms will need to be negotiated to allow for:
- Full due diligence of the business records, financial statements, cash flow statements and the like so that the buyer is satisfied about the viability of the business;
- Inspection of employee records, stock, licences (liquor licences, food licences), motor vehicles, and trade marks are some aspects to consider;
- An agreement may be reached about the training of the buyer of the business by the seller to allow for the smooth transition of ownership with customers and staff but also to ensure that the buyer knows all aspects of the business before completion.
It is important to engage a lawyer at this early stage to assist you in negotiating and drafting any terms of agreement between you. This is the case whether you are the buyer or the seller.
You may decide to speak with your bank if you require finance to complete the purchase of the business to have preliminary discussions about how much you can borrow to complete your contract.
You should speak with your advisors – accountants and financial planners – as there are often tax and planning consequences which flow from the sale or purchase of a business property.
- Entering into a Contract for sale of a business
When you have reached agreement about the terms of sale a lawyer will usually draft the contract. Both parties to the contract generally nominate a solicitor to act for them in the conveyancing for the contract. One of the lawyers will draft the contract.
You will generally be required to pay a deposit to the lawyer for the seller to be held on trust pending settlement, on the signing of the contract.
We recommend seeking legal advice before you sign the contract. See further below under “When should I speak to a lawyer?” This is crucial for the sale or purchase of a business– you will want to be sure that the terms of the contract are sufficient to allow you to undertake complete and full investigations into the business. You will want to include a ‘due diligence clause’ which allows you to undertake searches and inspect documents such as leases.
You should notify your bank if you are purchasing that you will need formal finance approval. If you are selling you should start to take steps to notify any bank which will need to release a charge over the business.
- Carrying out the terms of the Contract
During the conveyancing process the steps taken by a seller and buyer will be different.
You will need to notify you bank if there is a charge over your business straight away so that they can begin the process of preparing the charge for release at settlement. This process takes some time as banks have internal processes which must be followed. The earlier you can undertake this process, the smoother your settlement will be.
You will need to comply with any requests for information by the buyer pursuant to any due diligence or disclosure clause in your contract.
You may need to assist the buyer with on site training and transition.
As buyer you have much to do to satisfy yourself about the business.
You should, if you haven’t already, immediately provide a copy of the contract to your bank or finance broker to assist you with any finance requirements you have.
Your conveyancing lawyer will talk with you about searches which should be undertaken on the business. This process allows you to satisfy yourself that good title to the business will be available on settlement. Searches should be conducted straight away. Here you should search various government and body corporate records to ensure that there are no encumbrances or charges on the business that were not mentioned in negotiations or on the contract.
If you have a due diligence clause included in your contract you should take all steps necessary to search records and inspect documents so as to satisfy yourself about the commercial property you are purchasing. Your lawyer will liaise with you, your bank and your advisors to ensure that all steps are taken to protect your rights and ensure that you comply with your obligations.
There will be transfer duty payable on the purchase of the business. This is payable by the buyer. Your conveyancing lawyer will advise you about the amount of duty payable and when the duty is payable.
There are likely to be other steps to be taken by either a buyer or a seller. Your conveyancing lawyer should point you in the right direction to make sure that your transaction goes as smoothly as possible.
At settlement your bank and your lawyer, or their agents for both the buyer and seller will meet at a mutually agreed location, for settlement.
All of these steps have certain legal requirements or sub-steps that further dictate the process. Missing any of the required steps or deadlines can cause delays in the conveyancing process and significant problems (including termination of the process).