Sale and Purchase of Business – Seller | Pre-Contract Considerations
Useful for: Business, Not for Profits
In Brief
- What is the business structure being sold? Company shares or assets of the business? Consider the tax, financial and legal implications of each.
- Protect your intellectual property and confidential business information during the buyer’s due diligence period with a confidentiality deed (or within the contract if you will be signing a contract of sale before the buyer completes its due diligence).
- The buyer will need a range of information in order to take professional advice and make a decision about whether to purchase and if so at what price, including financial statements of the business, records pertaining to the business assets and operations, state of repair and serviceability of plant and equipment, terms of the lease of relevant premises, copies of employee, supply and customer contracts, and details of third party interests in any relevant assets.
- Is the buyer asking for a non-compete (restraint of trade) clause in the agreement? Is it reasonable having regard to the seller’s future plans to trade or be involved in competing businesses in the same industry after completion?
- Carefully consider the warranties (and in the case of sale of shares, potentially indemnities) that the buyer will seek and take advice on the reasonableness and potential implications to the seller after completion, noting that these obligations (among others) will survive completion of the sale and seller may become liable for losses incurred by the buyer after completion and well into the future. Areas of high risk are:
- Breaches/non-compliances of the seller with statutory laws, for example tax, superannuation, work health and safety laws, government or local government permits, approvals and consents relevant to the business operations and employment obligations.
- Misrepresentations or omissions in information the seller gives the buyer about the business that has a material effect on the buyer’s decision to proceed with the contract.
Read Full Article
Already have a subscription?
Click the button below to view the article. If you are not logged in, you will need to do that.
Monthly Subscription
$25.00 per Month (inc GST)
You can purchase a subscription and get access to all articles right now.
You'll be notified by email when new content is added or existing content is updated.
Your subscription will continue until you cancel it. You can do this at any time before the end of your monthly billing period.