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Key Commercial Issues for buying a business

WHEN BUYING SHARES IN A BUSINESS

You should consider and discuss with your accountant whether stamp duty, or any other taxes (Capital Gains Tax; GST), will be payable on the transfer of shares.

You should review with your accountant the company’s financial statements, including the balance sheet and profit and loss account.

Your accountant should review the taxation warranties and indemnities to ensure they provide adequate protection.

You should also consider and discuss with us or your legal adviser:

the warranties that should be obtained in relation to the rights and liabilities attaching to the shares and the assets owned by the company;
the application of related party transactions or application of financial assistance provisions of the Corporations Act;
the application of chapters 6 and 7 of the Corporations Act and the Foreign Acquisitions & Takeovers Act;
settlement procedures and required company secretarial tasks;
whether the transaction will affect any existing arrangements which are important to the business e.g. contracts with change of control provisions.

In addition to the above, if you are considering a situation where a Shareholders' Deed may be required, you should consider:

how the management will be structured;
what the requirements are for business plans, budgets and accounts;
how additional shares will be allotted to existing or new shareholders;
what rights will attach to shares and how they can be varied;
how the company will acquire or dispose of significant assets;
how the business can be sold or another business acquired;
who can make decisions to incur significant debts or expenses;
whether directors or shareholders can obtain loans from the company;
whether directors must be employed by the company and what happens if their employment ends;
who can make a decision to wind up the company while it is solvent.

The Shareholders’ Deed operates as a legally binding contract between the company and its shareholders which specifies a number of requirements in relation to the operation of a business.

You should also make sure that a share or business purchase transaction is properly protected for confidentiality. The Confidentiality Agreement for Buying/Selling a Business is specifically for this purpose.

WHEN BUYING A BUSINESS

You should consider and discuss with your accountant whether stamp duty or other taxes will be payable on the transfer of the business and how to apportion the purchase price between the assets.

You should also consider the following legal issues and steps to be taken when buying a business:

identify the legal entities that will sell and purchase the relevant assets and whether the purchasing entity is an appropriate entity to acquire the assets;
consider approvals necessary and applicable laws or rules, for example, Foreign Investment Review Board approval or ASX Listing Rules;
consider the taxation consequences of the transfer including income tax, stamp duty, capital gains tax and GST;
consider the need for a letter of intent, heads of agreement, explanatory memorandum or a confidentiality agreement;
identify the assets to be transferred, including:
- plant and equipment/fixed assets;
- trading stock;
- land;
- goodwill; and
- debtors.
identify agreements, leases and licences of the vendor. Determine whether the arrangements will be terminated, completed or assigned to the purchaser. Identify whether third party consents will be needed;
identify employee entitlements. Determine whether employee entitlements will be transferred to the purchaser (for employees who accept new positions);
establish arrangements for the transfer of superannuation of transferring employees;
determine the purchase price and finalisation of other commercial terms;
prepare agreements to give effect to the transfer;
make arrangements for the assets to be insured at the time of transfer;
make arrangements for the release of assets from relevant third party interests (for example, mortgages and charges) on or before completion of the sale;
send a letter to material suppliers requesting them to deal with the purchaser and confirm that the vendor is released from any obligations and not in breach;
send a letter to customers requesting them to deal with the purchaser and confirm that the vendor is released from any obligations and not in breach;
arrange for the termination of hire purchase/equipment leases and the execution of new agreements, if necessary;
send letter to debtors notifying them of the payment details of the purchaser if you are acquiring debts;
prepare the documentation for the transfer of land;
arranging the actual transfer of the legal and equitable title to the assets including payment of the purchase price and transfer of the assets;
notify relevant service providers, for example, electricity and water;
lodge any variations and dutiable forms for stamp duty within relevant periods.

If you haven't already, learn about undertaking Due Diligence before you buy into a business.

Why you need agreements for purchasing a business Risks of not having purchase agreements Key Commercial Issues for buying a business About Due Diligence About Shareholders' Deeds About Share Subscription Agreements

Business Purchase Agreement Share Purchase Agreement Share Subscription Agreement Due Diligence Checklist Confidentiality Agreement for Buying/Selling a Business Shareholders' Deed

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