Sale and Purchase of Business – The Contract of Sale
Useful for: Business, Not for Profits
In Brief
- It can be tempting to focus on price and payment, but sellers and buyers should both pay attention to the risks they are taking in entering the contract and how liability of each will be managed between execution of the contract and completion, and after completion.
- Conditions precedent to the contract operate to ensure that potential dealbreakers are properly identified and dealt with before the parties are obligated to perform the contract.
- Common preconditions will include buyer’s finance approval, legal approvals and consents and the buyer being satisfied with the results of its due diligence.
- Pay particular attention to the employees. Firstly, whether the employees will accept offers of employment with the new owner and on what terms, and secondly, compliance by the business with employment matters in the past. A full understanding of the history of the business with respect to employment related laws, contracts and wider agreements such as enterprise bargaining agreements will help avoid the buyer having to deal with claims in respect of latent non-compliances/breaches after completion, (including under tax, superannuation, fair work and return to work laws).
- If the seller is to be restrained from trading in the industry after completion, ensure the boundaries of the restraint are reasonable in the circumstances and go no further than what is necessary to protect the legitimate interests of the buyer. On the face of it, restraints of trade are against public policy and therefore the onus is on the buyer to prove reasonableness if the seller breaches the stated restraint.
- Where the business operates from a physical location that is important to the maintenance of its goodwill, it is important that the landlord has or will consent to an assignment or transfer.
- Does the seller agree to provide training or other assistance in the business before and/or after completion? If it does, ensure the activities and period of such training or assistance are clearly set out.
- Be aware of the full implications of the giving and receiving of warranties, especially after completion has taken place. Breach of a warranty may or may not give rise to a right to monetary damages by the buyer, depending on the circumstances of the breach.
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