There are numerous issues that must be addressed when buying a business.
Some of the key issues are as follows:
- It is important to ensure that you contract to buy exactly what was promised to you. Are you buying just the clients of a business and its goodwill? Are you purchasing only the plant and equipment? These questions appear to be straight forward enough, however buyers may be surprised to discover that their contract to buy (or heads of agreement) does not accord with what they thought had been negotiated during the pre-contract phase.
- Does the contract contain an appropriate restraint of trade clause? Does the contract preclude the seller from poaching customers of the business and/or from setting up shop in competition with the business for a period of time and within a certain geographical radius of the business premises?
- If the purchase includes plant and/or equipment (or other physical assets), are those assets secured by loans? If so, the assets should be discharged from the loan at settlement (most commonly via the proceeds of sale). As a buyer, you need to ensure that you are taking the assets free of any encumbrance. This could include mobile phones which may be under a fixed term contract with the telephone service provider.
- Who will be responsible for liabilities of the business and any warranties after the settlement date? As buyer, are you agreeing to take over any unpaid accounts or must the contract provide that the seller pay up any accounts as at the settlement date?
- Will the seller pay up any employee entitlements (e.g. long service leave) that have accrued to employees in the period that the seller has owned the business?
- What employment arrangements (written or otherwise), does the seller have in place?
- What ongoing service agreements, does the business have in place?
- Who will be entitled to receive monies on account of debtors accrued to the business prior to the settlement date. If the seller, is there any obligation on the part of the buyer to pursue these debtors on behalf of the seller after settlement?
- In what capacity is the seller occupying the premises? In other words, does the seller own the premises or is the seller occupying pursuant to a lease or licence?
These are a non exhaustive list of issues that any buyer should consider very early on during the negotiation process.
Kroon Legal can help negotiate your contract terms, advise on the contract and provide advice on relevant matters including those listed above.