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What You Need to Know About Selling Your Business

Most business owners hope to sell their businesses one day. Knowing the basics of business sales will help you maximise the sale price of your business when the day comes.

Selling a business will usually involve a sale of shares or a sale of assets. This article explains the pros and cons of both of these transactions and the importance of due diligence.

Share Sale

In a sale of shares, any stake in the business may be sold, from a minority shareholding to a majority or controlling interest. The transfer involves greater risk as the liabilities, as well as the assets, are being transferred.

A share sale will typically create a smoother transition for the company and the purchaser as all of the contracts with suppliers, customers and employees remain the same. As the purchaser is taking ownership of every aspect of the business, risks usually revolve around unknown liabilities of the business, such as tax liabilities.

From a seller’s perspective, a share sale can be advantageous as the liabilities of the business can be re-assigned to the purchaser. This allows the seller to make a clean and immediate break from the business.

Asset Sale

In an asset sale, the purchaser will buy the assets of the business and the seller will retain the company structure and any liabilities not assigned in the agreement. Depending on the type of business, assets can include plant and equipment, property, inventory, the company name, intellectual property and the goodwill of the business.

From the purchaser’s perspective, the purchase of a business’ assets will be fairly straight-forward and of low risk. This is because the purchaser is solely purchasing the assets of the business, rather than the legal entity itself which could have other contingent liabilities, including contract or employee disputes.

However, the risk for the purchaser is potentially having to re-negotiate supplier and employee contracts.

On the other hand, a sale of assets can be advantageous for the seller as they will be able to choose which assets they wish to sell and which assets they wish to retain. Legal advice should always be sought to understand when GST or stamp duty apply to the sale.

Due Diligence

Before a share sale agreement or asset sale agreement is executed, the purchaser should ensure that they have undertaken thorough due diligence. This means looking into some of the following details of the business:

finances including tax returns, income statements and balance sheets;

assets and liabilities including stock;

operations including cost price of goods, sales data, any applicable lease and a list of equipment and fixtures;

employee agreements and records of employment;

legal matters including any contracts, business loans, franchise agreements and trademarks.

Given the importance of the due diligence process, it is recommended that the purchaser seek legal advice in understanding any documents made available during this process.

A certified Business Lawyer can help.

At Taurus Legal Management, we specialise in providing our clients with share sale and asset sale agreements specifically tailored to each client’s needs. If you are thinking of selling or purchasing a business and require advice, please contact Alex Martin on 9481 2000 or alex@tauruslawyers.com.au.

 

 

Posted by Taurus Lawyers