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Buying a business may seem simple enough but, unlike the purchase of your home, there is no cooling off period or specific statutory protection so you need to make sure the purchase is handled correctly. The old legal maxim “Caveat Emptor“ (Buyer beware) applies to these transactions. At PBL we are increasingly receiving instructions in the sale and purchase of businesses particularly as small business people emerge from the global financial crisis and potential changes in the duties law.

So what are the 5 essential tips and traps that you need to be aware of?

1. The devil is in the detail

Normally the vendor’s solicitor will prepare a contract and submit it to you (or your solicitor) for your consideration. It is important to review the contract very carefully to make sure it is EXACTLY a reflection of the bargain you have struck with the vendor. If there is something in there which is not agreed or something not in there that should be, make sure you or your solicitor negotiates the necessary changes required to give full effect to the terms of the bargain. If you leave it out then you cannot go back and seek amendments later on.

2. Do your due diligence

It is basically fundamental to undertake a range of inquiries not only about the business but also about the vendor. Stock standard inquiries and searches should be launched to ensure that the vendor owns the business, that the assets of the business are unencumbered, that Intellectual Property going with the sale is registered in the vendor’s name or if not the arrangements that are to be made to assign the rights to it, that there are no insolvency issues so far as the vendor is concerned. In particular with the advent of the Personal Property Security Legislation it is important to undertake the relevant searches of the vendor to ascertain whether or not there are security interests registered against the vendor and appropriate clauses inserted in the contract to have them discharged.

3. Plant and equipment and practical inspections and reports

Many businesses will be sold with plant and equipment of various kinds. It is important to check the list of these assets carefully both from the contract and personally by attending the business premises at the time you receive the contract and AGAIN BEFORE exchange (and again prior to settlement). Make sure you get all relevant serial and registration numbers of all the plant that bears such details for a variety of reasons including checking encumbrances. If you are not experienced or have knowledge of the mechanics or functioning of the plant it is very prudent to engage experts to provide relevant reports to you PRIOR to exchange so you can, if you wish, seek changes to the contract.

4. Are there any issues with the landlord?

If the business is being run from premises then it is of utmost importance to engage with the landlord early on to make sure you will be accepted as a tenant either by way of a new lease or transfer of the existing lease. Time and time again completion of business purchase are delayed because of a lack of attention to get on the front foot and arrange the leasing terms well in advance even of exchange. Landlords will want to do their own due diligence and review your financials and may well require references from suitably qualified people to vouch for your talents so don’t leave it too late.

5. Business names, websites, domain names and intellectual
   property

Although this is a favorite topic of mine, I cannot stress too much how important it is to make the necessary arrangements about these business assets. You should be aware that IP (Trade Secrets, Copyright, Trade Marks, Designs and Patents) is not just “purchased” but in general must be transferred or assigned to the purchaser normally with a separate document and this should be covered in the contract. Transferring business names is now more problematical as ASIC has taken over control and there is a completely new legal paradigm and culture of dealing with them which requires expert advice and a need to also seek relevant special conditions to be inserted in the contract. Problems of a lesser nature for domain names also require early intervention. Checking ownership of the copyright in websites is a must as well.

There are other matters that could be the subject of consideration but these are certainly the essentials BEFORE you exchange.

More about the process of the business transaction post exchange in my next e letter.

If you need help in buying a business please contact us on 4305 3500[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_shadow=”none” width=”1/1″ tablet_text_alignment=”default” phone_text_alignment=”default” column_border_width=”none” column_border_style=”solid”][recent_posts style=”default” category=”all” columns=”4″ posts_per_page=”4″][/vc_column][/vc_row]