Thinking about selling your business? This simple overview provides you with commentary on some of the important matters to be considered.
Whose permissions do I need?
Depending of the nature of your business, the sale of your business may need the approval of third parties. If your business has a licence from a government body (either Federal, State or Local), or operates under a franchise agreement it may need approval from a third party before you can sell it. If your business occupies premises under a lease, you may also need the permission of your landlord to transfer the lease to the buyer.
The approval processes for each of these bodies can vary greatly and may be subject to minimum timeframes. Identifying these requirements and the likely timeframes is an important part of preparing your business for sale. If your business requires a government approval to function, taking over the business without the ability to lawfully operate it will not be an attractive proposition for a buyer.
What taxes do I have to pay?
In Queensland the standard sale of a business will attract stamp duty. In the case of businesses operated by a corporation, stamp duty may be reduced in certain circumstances where the sale of the business can be performed by selling the shares in the business owner.
The sale of a business can be a ‘going concern’ and therefore exempt from the payment of Goods and Services Tax in certain circumstances. You may also have ongoing obligations in respect of goods and services tax after the sale is completed.
There may also be other forms of taxation that you are liable for such as income tax or capital gains tax. It is important to consult an accountant or tax adviser on these matters.
Who drafts the agreements?
In general, the solicitors who act for the seller of the business will draft the sale agreement for the consideration of the Buyer. This may of course be varied on the agreement of the parties. It is often the case that the terms of the sale agreement are negotiated by the buyer and seller, with the assistance of their legal representatives and tax advisers.
When Should I disclose the financial details of my business?
It is common for buyers to want to perform investigations on a business they are assessing. This would normally include information that will permit the buyer to reach some comfort on the past financial strength, key operations and liabilities of a business.
Sellers would be well advised to only disclose the details of their business after the buyer has entered into a binding confidentiality agreement. Well drafted, this will ensure that any details shared can only be used for the purposes of the sale (and not for example, gaining a competitive advantage if the sale does not proceed). It will also ensure that any matters disclosed must be returned to the seller.
It is common that these matters are assessed during a ‘due diligence’ period that commences after the formal sale contract is signed by all parties. At times, information on the business can be disclosed prior to the formal sale contract, but again, this should only be done where a binding confidentiality agreement has been entered into. We can assist with the drafting of such agreements on request.
Do I have ongoing obligations after the sale is completed?
As noted above, you may have ongoing tax obligations after the sale. Depending on the nature of your industry, a training period may be offered by a seller to assist a buyer to adjust to the new business. This may include a period in which the seller is to introduce key clients or service suppliers to the buyer. In some cases, the parties may have agreed that a percentage of the purchase price is delayed for a period of time, depending on the ongoing financial performance of the business.
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