You need to understand the key components of a business before you start the process to sell or buy. Proper preparation with the right advice will get the best results.
You will benefit from our expertise to:
- assist you in negotiating agreements in relation to the terms of sale
- assessment of offers which are received and assisting you in the negotiation phase
- assessment of the taxation consequences of sales depending upon the structure of the business or interest being sold
- preparation and implementation of completion statements listing all matters which must be addressed at settlement
- advice & implementation of appropriate business structures
- review & drafting of business contracts
- review and advice regarding lease terms
- tax considerations
- liaison with financial institutions
- transfers of equipment licenses
- arranging due diligence searches and inspections
Before you start
Before starting the process to buy or sell a business, you need to be fully aware of the potential legal issues involved in the transaction. We also ensure that you have consulted with your Accountant prior to commencing the process of buying or selling a business.
What is being sold?
When you buy a business, you are acquiring ownership of a combination of rights, responsibilities and assets that are used together to create a product or service. It is essential that you identify these components to ensure they are effectively transferred by the seller. These components may include: business names, business goodwill, business premises (lease or ownership), equipment and fixed assets, stock, current orders, supply agreements, patents and trademarks, and business licenses. The seller must be able to transfer the ownership of all components to the buyer.
Who is the Purchaser?
For purchasers, we will help you to identify and implement the right structure for you when you buy into the business. The right structure will help you to minimise your risk, protect your assets, distribute income in a tax effective way and ensure that you will not pay any more CGT than absolutely necessary when you eventually sell your business. You may wish to protect your assets from the liabilities of the business entity and you may also wish to protect the businesses assets from personal liability. Purchasers and owners with an eye to the future (which may in fact be as soon as tomorrow) will implement business succession planning strategies.
What is included in the sale value?
When negotiating a price for a business the following component categories are considered:
Fixed Assets and Equipment
An inventory of all the assets and equipment of the business being sold; stating their ‘book value’ will be included in the contract document. If these assets are sold above the depreciated value this will become taxable income for the seller.
Where the business premises are leased, then the buyer must ensure that they can obtain the rights to the use of the premises either through a transfer of the lease, a new lease or through the purchase of the building.
This will give the business a value above that of the assets alone. In a tangible sense, ‘goodwill’ will involve business names, names of products and services, and telephone numbers. To increase the value of the business for the seller, the components of goodwill should be registered so as to become saleable commodities. Meanwhile, the buyer should exercise diligence in determining what these components of goodwill are worth and whether they are already registered. These may be amongst the most valuable items of a business and crucial to future business success.
Stock in Trade
This consists of all commodities used in the production of saleable goods, goods being produced and finished goods. Whilst the value of this stock will be originally based on an estimate, it is important for the buyer that this stock be accurately valued just before settlement of the sale and is within 10% of the original estimate.
Not included in the value of the business will be any ‘encumbrances’. Any mortgages, charges, or bills of sale over any stock or assets must be settled by the seller before the sale. If any stock or assets are the subject of a lease or hire purchase then the seller must be sure they can be transferred to the buyer or that the seller can pay them out.
Do I need legal assistance?
Buying or selling a business can be challenging and difficult, where even a “simple” transaction can lead to financial and legal hardship. Avoiding the cost of legal representation may be the most expensive cost saving you ever make as legal fees are insignificant compared to the amount of time and money that can be lost if the transaction is not handle