If you are thinking about buying a business, you will benefit from getting the right advice upfront.
The right advice will help you save money, address your fears and the risks and give you peace of mind.
We are regularly asked for advice on all aspects of buying a business, including:
- confidentiality agreements – these are agreements a seller will often require you to sign before it will discuss or provide confidential information about the business.
- heads of agreement – which set out the key commercial terms of a purchase or sale. You should get advice on this and any other legal document before you sign. If you sign a heads of agreement before getting advice, you can inadvertently lock yourself into a position even though you may have intended to add terms when a formal contract is prepared.
- structuring – there are benefits and detriments with each structure. The most common structures are: sole trader, partnership, company, family discretionary trust or a unit trust. Advice should be tailored to your situation and long terms plans. We focus on asset protection, risk mitigation, ease of operation, flexibility and tax effectiveness.
- type of purchase – there are benefits to buying the assets (but not the liabilities) from a seller. However, if you do this in Queensland, you will have to pay transfer duty to the Office of State Revenue. If the seller is a company, another way to buy the business would be to buy the shares in the company in which case you may not have to pay transfer duty. A concern with buying shares is your potential exposure to liabilities, however, there are steps that we can put in place to help address these risks.
- due diligence – there are some basic searches which should be done for every business purchase. Searches need to be done to verify the seller, ownership of assets, details of assets, registered encumbrances and security interests. Depending on the type of business, additional searches may be required. In addition to searches, a buyer will often benefit by looking into employment issues, existing contracts and getting advice on the key risks, recommended strategies to mitigate and those which might justify a price adjustment.
- GST – if you would like to purchase the business as a going concern, the seller will need to transfer all things necessary to enable you to continue the seller’s enterprise. The two main benefits of buying a business as a going concern are a 10% cash flow saving and you pay less transfer duty (because transfer duty is assessed on the GST inclusive price). Provided your tax advice is your sale will meet the ATO’s requirements for a going concern, there are key contractual terms that need to be addressed.
- contract – advising on the terms of the Sale and Purchase Agreement, recommending and negotiating amendments.
- employees – employees and employment issues are a key component of buying a business and often involve special terms under a business contract. As a general rule, if a buyer offers employment to an employee of the seller within 3 months after completion, the buyer will generally assume liability for accrued entitlements. There are a few things which a buyer can refuse to recognise prior service for (ie. annual leave, redundancy and resetting the qualifying period for unfair dismissal).
- leasing – where a business operates from someone else’s premises, the terms of the lease need to be understood along with the landlord’s requirements to transfer the lease. If the lease is for a retail premises, there are mandatory disclosure obligations which need to be complied with.
- PPSR – searching registered security interests to identify encumbrances over business assets which the seller needs to release before completion.
- licensing – the licences that are required to lawfully carry on certain businesses. These vary depending on the type of business. Common business licences include: business name, food, liquor, gaming, golden casket and various local government approvals. We recommend you visit the Australian Business Licence and Information Service (ABLIS) – https://ablis.business.gov.au/.
- transfer duty – which is an amount (in addition to the purchase price) that needs to be paid to the Office of State Revenue. Generally, it must be paid within 30 days of a contract being signed and is assessed on the higher of the unencumbered value of the assets (including stock) and the purchase price (inclusive of any GST). We can give you an estimate when you tell us the purchase price.
- transfers – the documents that need to be completed at or before settlement.
We prefer to work closely with your other key advisers, including:
- accountant – who provides the tax advice;
- banker – in relation to your financing of the purchase;
- insurance broker – who arranges the necessary insurance.
With the right professionals working collaboratively for your benefit – you will get a better outcome.
Transfer duty is an important consideration which should be factored into budgeting for a proposed purchase of a business.
Transfer duty is a State based tax which is payable to the Office of State Revenue on the transfer of Queensland business assets.
It is generally assessed on the higher of:
- the unencumbered value of the Queensland business assets (inclusive of any GST); or
- the purchase price (inclusive of any GST),
and it must be paid within:
- 30 days after the date the contract is signed; or
- if there is a third party condition (ie. finance), 30 days after the condition date.
Transfer duty is calculated on a sliding scale basis and the higher the value or purchase price, the higher the transfer duty.
Due diligence is a bundle of enquiries, usually undertaken by a buyer and their:
- lawyer – for the legal aspects;
- accountant – for the accounting and tax aspects.
Other professionals may need to be engaged depending on the type of business being purchased and the issues involved.
It is designed to assist a buyer:
- assess whether the purchase represents value for money;
- verify the assets it is acquiring and arrangements it will be part of;
- identify risks;
- implement risk mitigation strategies (eg obtain approvals and authorisations, negotiate amendments to the sale contract, warranties, and indemnities).
Ideally, due diligence is undertaken before you sign a contract. However, if there are other interested parties or the seller would prefer you to sign a contract before fully disclosing all relevant information, you may have to do due diligence after the contract has been signed. If this is the case you should insist upon a due diligence condition which allows you to terminate the contract and claw back your deposit if you are not satisfied with your due diligence enquiries.