Buying a Business - Vital Staff Protections

Posted by Luke Mitchell on 31 October 2018
Buying a Business - Vital Staff Protections

The purchase of a business is an exciting but often daunting transaction. Significant care must be taken during the negotiation stage to ensure that your investment is properly protected.

Here we’ll take a look at two important protections that all purchasers should ensure are incorporated into the purchase transaction.

 

Restraints on the seller

It is critical that the sale agreement contains appropriate restraints in order to prevent the seller setting up in competition to the business that it has just sold.

Those restraints should be drafted to prevent the seller, for at least 12 months (but often longer) after the completion of the sale, from:

  1. engaging in competition with the business that it has sold;

  2. inducing employees to leave the business that it has sold;

  3. inducing or soliciting customers away from, or accepting approaches from customers of, the business that it has sold;

  4. inducing suppliers away from, or otherwise altering their dealings with, business that it has sold.

 

Ensuring that staff have appropriate employment agreements

This is a critical issue where employees are being “acquired” as part of the purchase. Careful consideration needs to be given to the question of whether the terms and conditions upon which those employees have been engaged by the business are acceptable.

If new employment agreements are required, either because the terms upon which staff are engaged need to be altered or if there is no existing written employment agreement place, then it is important to ensure that all employees who are continuing with the business after the sale is completed, have signed their new employment agreement prior to the finalisation of the purchase of the business.

As the purchaser will become the employer of the business’ staff, care must be taken to ensure that those staff are engaged on appropriate terms.

To read more about the key considerations in the purchase of a business, download a copy of our free e-book here.

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