What to know before you buy a business!

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Buying a business means not just transferring business assets, but ensuring that you are buying what you believe is required to continue the running of the business. This means that a comprehensive due diligence process is an absolute must before you commit to anything. Some of the considerations to take into account when you buy a business include:

Reviewing the sale contract

to make sure that it is fair, and ensure that it properly covers your interests. This often means negotiating to add additional protections into the contract – for instance, to stop the seller from immediately competing with you and eroding your goodwill, or trying to poach customers or staff after the sale. Your lawyer could assist with identifying any unusual or onerous terms and you may decide to instruct your lawyer to assist with suggesting amendments to ensure you have a more purchaser-friendly contract before you bind yourself to a set of terms.

Identify the Intellectual Property

you are purchasing. There may be trademarks, copyrights, software, designs or other intellectual property which will need to be included in the purchase.

Checking equipment

to make sure that there are no charges or securities registered over them. If there are, and they are not discharged as part of the sale, then the Seller’s suppliers may be entitled to repossess them even after you have paid for them!

Transferring a Lease to you

to make sure that the business you are buying has somewhere to operate, or helping you put in place a new lease with your landlord.

Employees

entitlements are set out in the Fair Work Act 2009 (Cth). If the employment agreements are to be assigned to you, you should ensure that the Vendor has complied with the requirements of the legislation and any applicable modern award in order to avoid potential disputes. If you have chosen to re-employ some transferring employees, you are required by law to recognise certain previous entitlements of the employees. In this instance, you should ensure that adjustments to the purchase price is made to take into account employee entitlement obligations you are taking on from the vendor.

Making sure there is a “clean break”

between the Seller and you. You need to make sure that by taking over the business, you are also not taking responsibility for the liabilities of the business before you bought it – for example, a worker’s compensation claim for an injury that happened before you purchased the business, or defective work carried out by the seller before the sale.

Transferring other agreements

such as supplier agreements, equipment leases, marketing contracts, or services, which directly relate to the daily operation of the business.

Price apportionment

particularly with reference to plant and equipment, as this may have depreciation or capital gains tax implications.

And many more matters

which might be unique to your position or the business – such as franchise agreements, specific licenses or permits required to operate your business, and so on.

If you are going to buy a business, it is very important to only do so with quality professional advice from both your lawyer and your accountant. Elringtons’ Commercial Law team have assisted in the purchase of countless businesses ranging from small family-owned businesses right up to large commercial enterprises in both the ACT and NSW. Different complications and considerations arise apply to the various types of businesses. We can help guide you through this complicated legal process.

You may also be interested in our article – What to know before you sell a business.

For more information or to make an appointment in either our Canberra or Queanbeyan office please do not hesitate to contact Shalini Sree or Mitchell Evelyn