Buying A Business Legal Advice

Setting You Up For Success

Commercial Lawyer When Buying A Business

Buying an existing business

Buying a business requires careful planning and knowledge of various legal requirements.
Your new business venture will have the best chance of success if it starts off right with professional advice from a lawyer.

Legal costs when buying a business

Check with your lawyer about the legal requirements and associated costs of buying, selling or starting a business.

Getting the right advice early on can help you avoid problems once you are running the business. It is crucial that you consult with a lawyer before signing any contract.

All too often, sellers or buyers sign what they believe to be a standard contract, but one that does not adequately protect the parties’ rights.

The First Steps In Buying A Business

When purchasing an existing business, there are some steps you should take before making an offer.

Are you ready to start a business?

Have you thought about how you will structure the business?
Are you ready to be a business owner?
Can you affortd to buy a business?

When our clients come to us with plans on buying a business, we will ask them the following types of questions.
Carolyn Ryder has grown up within a family business so has seen both sides and how a business needs to both support a family but also allow a family to have a life outside of the business as well.

Business structures

The business structure affects your taxes, liabilities, ownership and profitability. We always recommend you speak to your accountant to get the correct financial advice for you. Your accountant may also be able to help set these up for you as well.

The four most common business structures are:

Sole trader (owned and managed by a single individual).

Partnership (association of people to carry on a business together, but not as a separate legal entity)

Company (legal entity that is a separate legal entity from its shareholders)

Trust (holding assets for the benefit of one or more persons).

If you plan to run a business jointly with another person, you need to make sure that you are clear with your partner or partners about how the business will be run.

Are You Fit To Run A Business?

Running or owning a business is hard work and requires much discipline. Before you start a business, check the following points to see if you are ready for business:

Do you have the right skills?
How much time will be required by you to make the business successful?
Are you ready to take on unusual working hours and time pressures?
What are your personal goals, will a business help you achieve them?
Do you have the capital to invest in a business ?

It is crucial to consider the costs of running a business before you consider buying one.
Financing is often one of the biggest obstacles to buying a business.
Have you started to get your own financials in order so that you have an understanding of a price range of a potential business to buy.
Once you have a business that looks suitable, the loan application can then start.

Finding the right business to buy

Finding the right business can be time-consuming and difficult.
Take time to consider your personal interests and what background experience you have or are willing to learn.
Look at the industry landscape, current competitors and potential competitors and what is happening in the market.
Once you have found a business you want to buy the next steps can start.

Do your research

Do your research thoroughly. Researching the business you want to buy will allow you to understand its reputation and potential.
Doing market research can help you understand the current customers and the market in which it operates.
Talking to existing customers, employees and neighbouring business owners is always a great way get an understanding on how the business is doing.

Carry out due diligence on the business?

Gather as much intell about the business as you can before signing anything! It is essential that you understand the whole picture.

As part of your due diligence, you will need to check the following items:

Licenses and permits: Does the business have all the proper licenses and permits required to operate the business? Are they current?

Contracts and leases – Will the landlord agree to transfer the lease into your name? Do you need to negotiate a new lease?

Existing Agreements: Are there any outstanding contracts between the vendor and suppliers?

Condition of plant, equipment and facilities – What kind of equipment and machinery does the business own? Is the equipment hired? Are they in good condition? Will they be included in the sale?

Business assets: What assets does the company have? Does it have any intellectual property to be transferred?

Inventory – Will the existing stock be included in the purchase? How is the inventory currently managed, stored and distributed? What is the current status of the inventory?

Liabilities: Does the business still have any debts? What reimbursements and warranties still exist for the business? Are there debts for assets on the personal property securities register? Is there unbilled fees or work in progress?

Staff: Is there existing staff? Will you take on the existing employees?

Financial due diligence

You need to obtain and verify financial information about the business independently. Make sure you review the last three to five years of financial information, including

Tax returns
Business activity statements (BAS)
Records of trade receivables and payables
Balance sheets
Profit and loss accounts
Cash flow statements
Sales records

Making the offer

Once you have valued the business and carried out due diligence, you will need to make a final decision on if the business is suitable to purchase.
Do not be afraid to negotiate the purchase price with the seller.
After the purchase price has been agreed upon, you need a contract.
The written contract ensures that both you and the seller know exactly what everyone agrees to.
The contract will specify the final cost and the accepted method of payment all the negotiated conditions.

Contract advice and negotiation.

Upon receipt of the sale and purchase agreement, we will closely review the business sale agreement drafted by the seller’s attorney.
We will advise you on the contract terms and whether those terms are customary or unusual.
If needed we can negotiate with the seller’s solicitors to amend the contract to better suit you.
EVERY business sale is different and this is why legal advice should always be sought out.

A typical sale will involve :

Transfer of the business name
Business premises lease
Key assets
Permits and licenses.
The price of the existing stock and fixtures to be included in the sale.
The inclusion of adequate warranties and representations about the company’s performance in the proper sale security of the performance of each party’s contractual obligations.
The “goodwill” (a figure that determines the intangible benefits that the business has built up.
Any claw backs if not all customers remain with the business after the sale
A restraint of trade to be agreed upon
Existing staff and the handling of staff claims.

The Business Handover

When both parties have accepted the contract terms, the contract is signed and exchanged between the respective lawyers, making the agreement legally binding. The contract will set out the role of the parties between exchange and settlement (when the balance of the purchase price is paid). During this period after exchange and before settlement, all or some of the following must be completed:

Completion of loan documentation (if the contract is not subject to financing, the loan documentation must be completed before the contracts are exchanged);
Obtaining bank guarantees
Obtaining licenses or permits;
Employment contracts;
Notifying suppliers/customers of the change of ownership, change of ABN and bank account details.

Business Insurance

Workers’ compensation insurance is a legal requirement for employers. In addition insurance against fire, burglary, public liability, disability and loss of profits is often required. The lease you sign will probably specify what kind of insurance you need.

The above information is a guide only.

The Queensland Government recommends that you consult with your commercial lawyer about specific legal issues.
If you are thinking about buying or selling a business – Carolyn Ryder is experienced in representing people who want to buy or sell a business.

Book in for a free 20 minute consultation.

Our commercial lawyers at Carolyn Ryder can handle all sized commercial real estate transactions.