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Buying a business – but have you missed something?
Business Law News | September 2015
There are some important but easily overlooked considerations for aspiring (and experienced!) entrepreneurs when purchasing an existing business
Buying a business can be a whole lot more complicated than handing over money to the owner of the business and collecting the keys. After you have identified your preferred trading vehicle to purchase and to operate the business, for example a company or partnership or trust or sole trader, you must consider the other aspects of your intended purchase key components of a business which may need to be accounted for can include:
- Lease – Is the business operated from specific premises which are not owned by the business? If so, then it is highly likely that there is a current lease which will need to be either
a) surrendered to the landlord so that a new lease can be prepared OR
b) assigned from the previous tenant (i.e. the person or company who is selling the business).
An assignment of a lease can be a whole lot more complicated than simply having the landlord agree to it (for instance, the landlord may have a mortgagee who will need to consent to the assignment also);
- GST – Is the property being sold as a “going concern”? A business sold as a “going concern” means that you will have everything you need to continue to operate it after you have finalised your purchase.
BEWARE!!! Even if the contract says that the business is to be sold as a “going concern” you may incur liability for GST if you do not receive everything required (including leases, domain names etc.) to continue to operate the business after completion of your purchase has been finalised;
- If the answer to this question is “yes” then you should not be required to pay GST on the purchase.
- If the answer is “no” then you will have to pay GST.
- Employees – You will need to identify whether or not you intend to take over current employment relationships of whatever variety and the continuing obligations with which you must comply must be addressed.
- Intellectual property of the business. This category can include any trade marks (registered or unregistered), a business name (registered or unregistered), any copyright in branding and systems and forms and processes or designs, or a patent or patents which you require to operate the new business. If so, then you will need to have any registrations transferred to you to continue to trade under the business name and/or enter into a formal licence agreement enable you to operate the business to its potential;
- Domain name/s – Does the business have a website? If so, the domain name will need to be transferred to you as the new business owner;
- Business telephone numbers – Does the business have a well-known telephone number that is critical for the ongoing operation of the business?
- Are there any ongoing debts or liabilities owed to the business of that you are purchasing as a part of the business’s assets? If so there are formal legal requirements to be complied with to enable you to obtain the benefit of these valuable assets.
- Liquor licences – Are the premises operating as a licensed restaurant? If you would like to serve alcohol then you will need a Liquor Licence which means that you will have to comply with the requirements of the Office of Gaming, Liquor and Racing. If there is already a Licence for the premises then it will also need to be transferred to you.
As can be seen from the short-list of items above, purchasing a business is more than just paying money for keys to a shop and opening the doors for trade. The Contract for Sale of Business is a great starting point for determining the sale price, the stock in trade, the inclusions, training and restrictions on competition etc., however, it does not fully address how you are to receive ALL of the things you will need to own and operate the business you are purchasing.
The solicitors at Forum Law have a wealth of experience and are well qualified to advise and assist you with the purchase or sale of a business. Contact us on 02 9560 3388 for an obligation free telephone discussion or a 30-minute free consultation to discuss any concerns you may have about purchasing or selling a business.