Here is a legal checklist that will help if you are selling your business

If you’ve decided to put your business on the market, many legal considerations need to be factored in before you can sell. This must be done properly to not only cover you but the new buyer too. Not sure where to start? Well, you’ve come to the right place because we have complied a legal checklist to ensure you tick all the boxes when in the selling process.

Don’t make any hasty decisions

Before putting your business up for sale, take the time to consider whether you are making the right choice or not. If you are experiencing financial troubles and are selling to relieve them, speak to a professional to discuss what options you have based on your circumstances. You may be able to put some strategies in place to get the company back on track.

The sale price and what is included in the transfer

Both you and the potential buyer must agree on the sale price before anything is signed or sold. It may seem like a simple thing to get right however, you should be clear on what assets and items are included in the transfer. For instance, if you have machinery or cars that are used to maintain everyday business, you should establish whether the sale is all-inclusive and includes such things or if it’s just for rights to the brand or individual aspects. Selling terms can vary significantly, so you will need to state what is and isnt included and the new buyer needs to be made aware of this and agree to the terms of the sale.

What are some common elements of a business that are transferred to a buyer?

• Equipment or machinery
• Business assets
• Provider and clientele lists
• Business name
• Furniture
• Vehicles

You will need to determine if there is anything you want to withhold from the sale before selling. Not being upfront from the get-go can see you disputing with the buyer and you may even lose a sale from it.

A restraint clause

To give the buyer confidence in their new purchase, you may want to include a restraint clause. A “restraint of trade” simply means that you as the seller cannot replicate or trade as a new business that is virtually the same concept as the one you are selling. You can stipulate timeframes in this clause if you wish. Those with a unique business would most benefit from offering this to a buyer. Seek legal advice on this matter if you or the buyer want to include this in the sale.

Handover training

Your contract should outline whether you or your staff will provide training to new employees when the buyer takes over. Usually, the minimum period is two weeks however, you should negotiate a period that is beneficial for you and enough time for the new owner to have an understanding of the everyday running of the business to ensure its success. The duration of the handover training depends on how complex the day-to-day operations of the business are and how much there is to learn. Handover training can last anywhere from less than 2 weeks right up to 6 months plus. You will need to state whether the training will be done on a full-time or part-time basis.

Employees

What happens to your employees once you sell is an important aspect that you will need to consider and should be negotiated with the buyer. The new owner may purchase the business with the intention of maintaining the current employees, or they may disagree to take on any existing employees. Once you have decided to sell, you should advise your staff as soon as possible, this gives them time to consider whether staying on or leaving is in their best interests. If staff leave or the new buyer doesn’t want to take on any employees as a part of the purchase, you will need to honour any entitlements that your staff are owed before the settlement of the sale.

Taxes

When selling, you will need to think of the tax consequences that may apply to the sale. Tax considerations may include:

• Goods and Services Tax (GST)

If your business is required to pay tax on the sale, the buyer will have to fork an additional 10% on the purchase price to cover the GST.

• Capital Gains Tax (CGT)

CGT applies to any capital gain you make from disposing of assets. Some small businesses may be entitled to CGT concessions.

It is best to speak to a finance professional about which taxes you will have to pay before committing to selling.

Work with a professional broker

Reputable business brokers know the ins and outs of selling companies and they can offer invaluable advice and guidance to ensure all your legal requirements are met. Not only that they can provide you with an accurate valuation, market your business and negotiate the sale to get you the best result. Make sure the professional you choose to work with is highly skilled and has an in-depth understanding of the legalities involved with selling businesses like yours.

Looking for a broker?

We have some of the countries most elite brokers here at Morgan Business Sales. You can have peace of mind knowing your company is in the very best of hands. Get in touch today to discuss your options.