When buying a business, there are always things to consider. When rushing into a business contract, you leave yourself at risk of substantial legal ramifications.

No matter the size of the business, here are some important factors to take into consideration before signing on the dotted line.

1. Buying structure/entity

Before signing anything, it is important to seek advice about the appropriate structure for your business and the correct buying entity.  For many businesses’ asset protection should be a priority in order to prevent future legal complications.

2. Due Diligence

When entering a new contract, it is legally expected that the purchasers of the business have carried out extensive due diligence enquiries into the business.

You should seek assistance and advice from your solicitor and/or financial advisor as to which due diligence enquires are necessary, but some common ones include:

• IP – Ensuring that any intellectual property owned by the original owners is included upon settlement.
• Money – Ensure that any figures provided by the seller have been verified. It may be useful to have your accountant and financial advisor look at these.
• Name – It’s important to know what you’re buying; this includes the business name. Ensure that any name you acquire in the settlement is registered and owned by the sellers.
• Regulations – Ensure you have all the necessary permits, licenses and qualifications to operate a lawful business.

3. Earnouts

Sometimes, when you buy a business, you may want to ensure that the seller remains attached to the business for a short period of time after settlement. This may be valuable in assuring continuity of the business, or to ensure that the purchase price is justified.

4. Employees

The most valuable part of any business is its employees. How they are treated during a transition of owners can have a significant impact on productivity and overall happiness with the company.

After determining which staff to retain, it is important to enter into appropriate agreements with those workers. Furthermore, the matter of who pays accrued entitlements of the staff should be included within the contract between the buyer and seller.

5. GST

Often when purchasing a business, it will be done as a ‘going concern’, and therefore GST will not be payable in addition to the purchasing price. This is assuming you meet the legislative requirements of the ‘going concern’ provisions.

6. Lease

Make sure you determine whether you will be signing onto an already existing lease or entering into a new lease agreement with the landlord.

7. Stock

For some businesses, the stock is one of the most important staples of the company, in other businesses, like service-based enterprises, it may not be as crucial. In either case, it is important to determine whether stock is included in the purchasing price. If it’s not, then ensure that the maximum price for the stock is included in the contract.

When you buy a business, you don’t want the seller to be opening a similar competing business nearby, or by going to work for a competitor. Therefore, it is important that appropriate restraints are included in the contract. Restraints must be carefully written and be considered reasonable by all parties, or they may be found to be unenforceable in court.

Buying a business can be an incredibly exciting venture, but it is important to ensure you give yourself the best chance at success by ensuring you consider all of the above factors before signing a business contract.

For more information, or advice on a business contract, please contact Calvados + Woolf Lawyers by calling us at 07 3252 9933, 07 3849 6263 or by emailing reception@calvadoswoolf.com.au.