Frequently Asked Questions
- 1. Questions I need to consider?
Consider what you are actually buying... What is the reason the business is being sold? Is it a franchised business?
What goodwill needs to be protected?
Do I need a restraint of trade from the seller to prevent them from competing?
What equipment am I buying and what condition is it in?
Are there any supply agreements or other contracts essential for the business?
The guidance of an experienced solicitor is imperative in assisting you with these questions as every business purchase can be unique.
- 2. Searches
After the contract has been signed SPM Law conducts all the searches recommended by the Queensland Law Society and in certain cases, additional searches. Costs range from between $700 and $1200 depending on the business being purchased. Searches are charged at cost, meaning that SPM law does not charge anything additional for carrying out these searches on your behalf.
- 3. What entity do I buy it in?
There are several types of entities in which you could purchase a business including, sole trader, partnership, company or trust. This will need to be considered in consultation with your accountant.
- A sole trader – a person trades in their individual name
- Partnership – a group of individuals ( or other entities) trading together
- Trust – Discretionary (sometimes called family trusts) or fixed (sometimes called unit trusts)
- Company – the business is run by a corporate entity with shares being owned by the interested parties
Each entity type has pros and cons so it is essential to get the right advice before you begin. Also, it’s not just about the taxation of income – other factors such as getting into and out of business should also be addressed.
- 4. What is the process?
Once you have performed your due diligence and your initial investigations, you will need to enter into a contract with the seller. This contract should cover all the relevant aspects of the business and may include:
- Financial verification of the trading figures
- Verification or obtaining of any necessary licenses needed to trade
- Review of the lease of the premises
- Obtaining finance from a bank
Once both parties have signed the contract, searches of the business and seller are conducted with any necessary investigations being carried out. Approval to any assignment of lease from the landlord is obtained as well.
- 5. What is transfer duty?
Transfer duty (formerly known as stamp duty) is generally payable on the earlier of 30 days from the contract date or 30 days after the contract becomes unconditional. In certain circumstance this can mean that duty needs to be paid before the settlement date. In this instance, buyers should make sure that they have sufficient funds to pay both the deposit and transfer duty prior to settlement and without relying on finance.
- 6. Do I have any other legal obligations?
The experienced team at SPM Law will ensure that you cover all your legal obligations including:
- Do my have business licences need to be cancelled or can they be transferred?
- What is my GST position?
- Do I have to transfer or assign my lease and how do I do that?
- Do I have to notify the Australian Securities and Investment Commission?
- Should I transfer title of any of my assets?
- 7. Do I need a contract before I find buyer?
It is highly recommended that you have a contract drawn up before putting your business on the market. Negotiations can go wrong at the last minute because parties think certain things are agreed when in fact they aren’t. Rather than wait until an issue has arisen, presenting a buyer with a draft contract clearly identifies the terms on which you are willing to sell. Sometimes business sales can go wrong over very simple things that could easily be avoided.
- 8. What do you mean by due diligence?
Due Diligence can involve a number of aspects. It may be a financial checking that the figures presented to the buyer are accurate. However, it can also include the buyer verifying that the business can be legally operated and has licences, permits and other matters in place that allows the business to be properly operated. Accordingly having proper advisers prepare for this should be part of your process when planning to sell.
For the answers to these and any other questions you may have, please contact us.