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Is your business fit to be sold?

Commercial Law

You may not be ready to sell your business, but what if you received an offer too good to refuse?  Or, if you are an owner operator who is crucial to running of the business, what if you are permanently disabled or die?  Is your business set up in such a way that (or what would need to be done so that) it can be sold, and you can walk away, free from all further responsibility?

As the seller, you would be primarily interested in the sale price and when it will be received.  The buyer, on the other hand, would be far more concerned with what it is acquiring and ensuring that everything is in order.  It follows that, to make the sale and settlement process as smooth as possible, you would be wise to look at the transaction from the buyer’s point of view and (so far as possible) to prepare everything for easy transfer.

Documenting your business systems and processes is the most basic form of preparation (and can have the incidental benefit of critical review that leads to improvements).  Transfer of some assets, such as business names, domain names, telephone numbers, passwords and login details is fairly routine.  But other things require special treatment.  Here are some examples:

  • Does your business depend on a licence or franchise granted by government or by a private organisation? Who holds the licence?  Is it transferable and, if so, what needs to be done to transfer it to the buyer?  Sometimes the licensee is an individual and special approval is required for the licence to be transferred.
  • Has your business complied with all applicable laws and obtained any necessary certificates of compliance, e.g., in relation to building development, construction and safety? Depending on when the development occurred, many of these may be required to be obtained annually.
  • Will the lease of your business premises be transferable? Does it (with options of renewal) offer a buyer sufficient security of tenure at the location?  Most leases require a transferring tenant to satisfy the landlord of the business acumen and financial stability of the transferee of the lease – and then to accept continuing liability in case the transferee defaults under the lease.  In some cases, an extra fee is payable as a condition of transfer of a lease.
  • Have you given your personal guarantee of performance of lease terms and other contracts for supplies to the business that will continue after settlement? It will be important to obtain release of those guarantees or, alternatively, to terminate those agreements, if that is possible.
  • Which of your suppliers have registered security interests over your business assets on the Personal Property Securities Register? It will likely be necessary to fully pay off the suppliers’ accounts in order to have them released on settlement.
  • Do you have your customers’/clients’ consent to transfer their personal information to a buyer of your business? This is especially important if your business is subject to the Privacy Act, 1988 or if it has business dealings or customers in the European Union.
  • Is the intellectual property that will be sold with the business properly protected by registration in all relevant jurisdictions (if it is registrable) or through appropriate confidentiality agreements with employees, contractors and licensees – and are those agreements transferable? It may be too late to make those arrangements retrospectively.
  • What is the liability of your business for staff entitlements (annual leave, long service leave, redundancy pay, etc), who will take responsibility for them and how will they affect the price paid for the business? Many buyers of businesses will only take on selected staff and refuse to accept responsibility for their accrued entitlements, meaning that the seller must pay them all.

Clearly selling your business would be more complicated than finding a buyer and agreeing a price.  Preparation is the key to ensuring that everything goes smoothly.  Our experience of acting for sellers and buyers of businesses (but not for both parties in the same transaction) equips us to foresee the issues that will arise and to guide you through the steps required to overcome potential problems. Please contact Special Counsel Michael Tyler on (02) 9411 4466 if you would like assistance in this area.