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How do I sell a business?

How do I sell a business?

Businesses are bought and sold in Australia on a very regular basis. As such, there is a plethora of standardised Sale of Business contracts that business owners can use to assist them in selling their businesses. Part of the sale process involves determining the value of your business and the most opportune time to sell. Along with these important considerations, some thought should be given to the transfer of ownership. Ultimately, you need to ensure that ownership of the business and all of its assets are being transferred to avoid legal problems at a later stage. Part of transferring the business and its assets is being able to identify them so they are included in the Sale of Business Contract. These assets will vary but usually include the following:
• Goodwill;
• Stock in trade;
• Intellectual Property (business name, logo, copyright)
• Leasehold interests. This will be important if you wish to transfer the existing lease to the purchaser of the business so that the lease continues to operate;
• Any relevant licences, permits or approvals (this will depend on where the business, i.e. which State it is in, and in which industry it operates);
• Franchise agreements (if it is a franchise business);
• Supply Contracts

Before exchanging contracts
Normally, during the sale of a business, the contracting party use a standard contract for the Sale of Business. These contracts are comprehensive and generally canvass the most important aspects of the law. Obviously all business will differ slightly, and it will be important to reflect these variations in additional clauses or special conditions. Make sure that your lawyer drafts these clauses effectively at the outset so that neither party is confused about what the sale does and does not include. At this stage, the buyer will conduct inspections of the business and its premises to confirm the details scaffolded in the Sale of Business contract.

Exchange of contracts
Following negotiations, the next logical step in the selling process is the exchange of contracts (signed, of course). You will be responsible for organising an appropriate time and place to sign and exchange the contracts. Normally the buyer will provide the deposit in cheque form. Once exchanged, each party will be bound by the terms of the contract.

Pre settlement
At this point, you’ll need to carry out various obligations specified in the contract. These are standard duties, however, there may be additional duties in the special conditions. The standard obligations of the selling party will include the following:
• Transfer ownership of all business-related documents;
• Upholding the business’ goodwill;
• Discharge securities, mortgages or any other encumbrances that affect the business;
• Obtain consent from the landlord to transfer the lease to the purchaser.

Settlement
Certain documents need to be exchanged between the parties once they reach settlement. These include documents that effectively transfer ownership rights, which the selling party provides to the purchaser. On the flip side the purchaser will bring bank cheques or deeds to the remaining balance. As the seller, you may give:
• Share transfers
• Share certificates
• Appointment of directors
• Approvals for share transfers
• Items listed in the second schedule
• A Director Resignation document

You may be given the following in exchange:
• A bank cheque for the value of your business
• A deed of guarantee if there is a lessor involved
• A signed deed of guarantee by the purchasers

Post settlement
Once settlement is done, there will be numerous steps for the purchaser to take to make sure they are now the true owners of the business and its assets. Your lawyer should assist in checking that ownership has transferred to the purchaser and that you are no longer responsible for any of the business’ assets. Your lawyer will need to do the following:
• Cancel licenses/insurance relating to the business still in your name
• Send an order on the agent so that the deposit paid by the purchaser gets transferred to you
• Advise you of the settlement proceeds and any legal costs

Taxes including CGT, GST and other costs
Another important consideration when selling a business is the taxation implications that attach to such a transaction. It will be imperative to understand the tax consequences flow on from the sale of your business. If you are GST registered, you may have to pay GST when you sell your business. Selling your business ‘as a going concern’, on the other hand, might avoid GST altogether. Selling ‘as a going concern’ means:
• You and the purchaser agree that the sale of the business is a going concern;
• The purchaser has been registered for GST purposes;
• The purchaser is being given everything they need to continue operating the business;
• The business being sold for payment;
• The business will continue to operate until it is sold.

Selling your business and making a profit means you may attract Capital gains Tax (“CGT”). CGT attaches to business assets and intangibles (intellectual property/ goodwill). As a startup, there may be certain tax concessions available, and it would be worth speaking with a business lawyer and/or financial adviser to see whether you’re eligible. Stamp duty is another consideration, however, the purchaser, not the vendor, pays this.

Conclusion
Selling your business is an exiting time, however, care must be taken to avoid skipping steps. Seek legal advice when in doubt, and to get a better understanding of the legal risks, and any duties you may owe to the other party. Remember, lawyers give legal advice and financial advisers give financial advice. For advice regarding financial concerns, such as the value of your business, speak with a financial specialist.

For everything legal, call LegalVision on 1300 544 755. We have assisted 1000’s of small and medium business around Australia in the buying and selling process.

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