Questions to ask your lawyer about business sales and purchase

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Done on a handshake

While transactions involving the sale and purchase of real estate, mortgages, or insurance require written contracts, such is not the case in other business areas. Agreements may be written, or they may be verbal. The so-called handshake agreement is legally binding, provided of course that the agreement and the details of it can be proven. And there is the rub. It would be a brave person indeed, who would enter into either a business sale or a business purchase with anything less than a properly prepared contract that fully covers the specifics of the transaction so that all concerned are precisely aware of all details. Innuendo, assumptions, vague references and unsubstantiated promises have no place in these transactions.

‘Conditions Precedent’ 

Aren’t legal terms great? A contract may include several. Essentially, these clauses will specify certain actions that need to occur for the contract, even if signed, to become binding. Perhaps the sale is dependent upon finance being obtained. Possibly settlement is to only occur if certain licences, contracts, or permits are transferred. It is incumbent on both parties to ensure that such dependencies are formally locked into the contract. These are vital legal considerations.

But I thought …

It is imperative that both parties are entirely clear upon what exactly is included in the intended sale:

  • Plant and equipment –  owned outright, leased, or even on loan?
  • Supplier deals – are these locked in with contracts, or based only on some loose verbal arrangement buried in time?
  • Company name – company name and branding can carry significant goodwill. Is it included in the sale?

These are some of the items that need to be definitively ascertained, and various business types will infer their own specifics to be considered.

Due diligence

It may walk like a duck and quack like a duck, but is it a duck, or just a chicken in a very impressive duck suit?

It is essential that sellers present and provide accurate financial records to justify the financial credentials of their business. It is equally important that potential buyers, either themselves or their lawyers and accountants, satisfy themselves that all is as it should be, by inspecting:

  • Tax returns
  • Profit and loss statements
  • Business Activity Statements (BAS)
  • Supplier and customer contracts

Our staff are our greatest asset

This may well be the case, and it is important for potential buyers to ascertain, as far as possible, the disposition and possible changes in this crucial area.

Long-standing and experienced staff have intimate knowledge of products, procedures and customer needs. A new owner going in cold with a new and unfamiliar staff line-up may find that the expected outcomes are not being achieved.

It is also important to be fully cognisant of staff contracts, leave and pay liabilities, and superannuation status.

Question time

As the old saying goes, the only silly question is the one that wasn’t asked.

It is vitally important that sellers have a frank discussion with their lawyer to make sure their business is fully presented in not only the best light, but in a manner that is fully justifiable, and ready to withstand full analytical scrutiny.

Likewise, potential purchasers should not be backward in satisfying themselves fully on every aspect of the intended purchase, the contract, and the timeline of the process that will ensue. Anything less is tempting fate.

Business and contract law – it is good practice to engage the experts. Owen Hodge Lawyers – we are here to help. Contact us today on 1800 770 780 or via email at [email protected]

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