Buying & Selling Businesses Blog Series - Part 6 - Managing the Risks Associated with Buying or Selling a Business

Posted by Malcolm Campbell, Luke Mitchell on 23 March 2016
Buying & Selling Businesses Blog Series - Part 6 - Managing the Risks Associated with Buying or Selling a Business

Over the past blogs in this series we have covered a lot of ground about what can be a complex transaction involving a number of differing elements and legal agreements.

Recapping on some of the main points to remember when considering whether to buy or sell a business:

 

When selling

  1. ensure that the method used in valuing the business is accurate and, if relevant to your business, that there is a mechanism for valuing any trading stock at completion;
  2. if you agree to a deferred purchase price payment structure, consider requiring security or a guarantee in respect of the outstanding amounts,minimise where possible the right of retention by the purchaser and always specify minimum values as to claims to be made by the purchaser for things such as alleged breach of warranties to ensure you get as much of the deferred payments in you pocket as possible;
  3. carefully consider apportionment of the purchase price for the purposes of CGT;
  4. identify the intellectual property owned or licensed by you and determine whether such intellectual property can be assigned;
  5. ensure that you have received proper assignment of any intellectual property created by third parties prior to entering into the sale contract;
  6. if you are to remain liable under a lease or other contract, obtain indemnities from the purchaser;
  7. make sure understand your obligations under your lease and other key contracts which you wish to transfer as  part of the sale;
  8. co-operate with the due diligence enquiries of the purchaser, but ensure proper confidentiality provisions are entered into with them before handing over your sensitive information;
  9. be aware of the possible consequences of any pre-contractual representations made;
  10. ensure that you only give warranties that you are able to comply with and that any changes are fully disclosed in writing prior to completion.

When buying

  1. ensure that the method used the valuing the business is accurate and consider whether you wish to purchase on a stock inclusive basis or whether you wish to do a stock take just prior to completion;
  2. allow for adjustments to the purchase price in the event that anything occurs or arises that may affect the profits or value of the business, including but not limited to, employee entitlements;
  3. carefully consider apportionment of the purchase price for stamp duty purposes in terms of both the dutiable property the subject of the transaction, and its location;
  4. review the deadlines for payment of stamp duty in each relevant location to avoid incurring late fees;
  5. determine whether the business will be sold as a going concern and whether you will be liable for GST on the purchase price;
  6. consider whether conditions precedent should be included in the contract;
  7. identify any key personnel and whether such personnel are to be offered new positions of employment and/or whether they are the subject of an adequate restraint of trade;
  8. identify the intellectual property to be purchased and the relevant owner. Obtain warranties and indemnities in relation to the vendor's right, title and interest to such intellectual property;
  9. ensure that any premises necessary for the conduct of the business will be assigned or transferred to you at completion;
  10. conduct thorough due diligence;
  11. obtain comprehensive representations and warranties by the vendor as to the state of the business;
  12. ensure the agreement contains clear terms and arrangements for the payment and delivery of possession, unencumbered title and security of tenure to what you buy;
  13. obtain an indemnity from the vendor as to debts or liabilities of the business; and

include appropriate restraints of trade in relation to the vendor.

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