Romano Legal Pty Ltd

Solicitors & Conveyancers

 

Businesses
Up Conveyancing Businesses Commercial/Retail Lease Wills & Estates Power of Attorney Legal Services Workplace Relations Newsletter Feedback & Comment

 

 

Selling a Business

It is important that a vendor qualifies the prospective purchaser. Accepting an offer from a cashed-up but inexperienced, incompetent business buyer could well prove to be expensive in the long run. That incompetent operator will soon be looking to blame anyone except himself/herself when the business fails.  To recover his/her investment, the incompetent business operator will seek to discover some 'misrepresentation or misleading and deceptive conduct' - be it disclosure or non disclosure by either the vendor or the broker during the selling process. If the buyer can show that unsubstantiated claims were made about the past performance of the business or if the buyer can show that there was some non-disclosure which would affect the business, he/she may have grounds for a claim against you.

 

Some of the possible costs of selling to an incompetent buyer are:

Legal expenses of defending 'misrepresentation';

Any compensation awarded by the courts;

Franchise fees unpaid by the incompetent buyer;

Unpaid rents;

Unpaid employee entitlements.

It could well prove to be expensive to sell to an inexperienced buyer. Therefore you should document all negotiations with prospective buyers, including verbal representations and disclosures. The more complete your notes, the better your chances of a successful defense against incompetence.

 

Before you start marketing your business prepare a dossier. Here are some of the items you should include:

 

Copies of Tax Returns for the previous three periods;

Inventory of plant, machinery, motor vehicles, furniture, etc. to be included in the sale;

A copy of your current lease and written evidence of any extension to the term agreed to by the landlord;

Estimate of value of stock and the maximum value to be available on completion;

List of employees available after completion;

Details of training you are prepared to give;

Copy of Franchise Agreement (if applicable).

 

This is not an exhaustive list. You should be guided by your broker as to what to include to facilitate a sale. It is important to note, however, that the more factual information you disclose, the less likely it is that you are sued for misrepresentation.

 

A Contract for Sale will be required to transfer title to your business. Your solicitor will prepare the contract based on the information you supply and will submit it to the buyer's solicitor for approval.

Buying a Business

 

When buying a business it is imperative that you carry out the necessary enquiries before you sign anything. We will guide you through the transaction to ensure that any risk is manageable and within reasonable guidelines. It would be prudent to also consult your accountant about the purchase. There is never any benefit entering into a financial commitment without full knowledge of the risks.

 

The contract sets out the assets that are being transferred. It also sets out any trade restraints imposed on both the vendor and the purchaser. It nominates any licences that are to be transferred and when they are due to expire. It does not, however, highlight peculiarities and special skills that may be required to retain the efficiency and the profits of the present operation. If the business is completely dependent on the special skills of the present owner you will need to assess your ability to run such an operation

 

It is essential that the conditions and terms of any Lease agreement be carefully scrutinized. Your newly purchased coffee shop may not be worth much if the lease is about to expire and the landlord has no intention of renewing the lease. And there may well be GST implications on the purchase if the business being purchased is not a going concern. 

 

Tax Structure

If this is your first business venture it is essential that you set up a Tax structure to suit you. You may want a corporate structure or a partnership or you may elect to operate as a sole trader. Issues of income tax, capital gains tax and personal liability need to be considered. Sooner or later, but before signing a contract, you should also consult an accountant. 

 

Your solicitor will take you through the process so as to minimize the risks when buying a business. Ring Peter Romano on (02) 9742 5529 for more information.

 

Professional Advice, Competitive Price

Contact   Romano Legal Pty Ltd

Phone:  + 61 2    9569 3177

Postal Address:

 

PO Box A111 

ENFIELD SOUTH  NSW  2133

 

OR        

peter@romanolegal.com.au

Fax:      + 61 2    9550 0245

Office address:   Suite 8, 296 Marrickville Road,         

                                  MARRICKVILLE, NSW, 2204

 

More Information: 

If you need more information, we have brochures on many topics that might answer your questions. You can also register for our quarterly Newsletter, Updates to the Law and Special Offers. See our Feedback & Contact page.  

Liability limited by a scheme approved under Professional Standards Legislation
Romano Legal Pty Ltd is a member of the Law Society of New South Wales