If you are considering buying or selling a business, then it is important you obtain legal and accounting advice as to which structure most suits you and your company’s needs.
Generally, the two most commonly used methods for a business sale and purchase are:
- The assets, which comprise the business, are sold/purchased from the vendor company; or
- All (or part) of the shares of the vendor company are sold and purchased.
Whether you are a vendor or purchaser, it is essential to first carefully consider the benefits and risks of both methods before signing a sale and purchase contract. A sale and purchase involves more than establishing an agreed purchase price, it also concerns minimising risk and tax liability.
Buying a Business/Assets from a Company
As mentioned above, an asset purchase involves the acquisition of the business and its assets (including stock and goodwill) by the purchaser. This means the transaction will require the vendor to transfer to the purchaser each of the individual (agreed) assets which form the business along with assignment of all agreed service related contracts of any third party contractors or suppliers.
In addition, all assets being transferred to the purchaser will need to be free of any charges which may be secured by Financing Statements registered on the Personal Property Securities Register.
Consideration will also need to be given as to whether any employees of the business will transfer to the employ of the new owner. Care should be taken with the drafting of the sale and purchase contract so that suitable clauses are included in the document which address all relevant matters relating to the transfer of employees (such as vendor warranties which confirms there are no - adverse performance related issues with any employee or employment related claims). Other matters relate to the preparation and provision of new employment agreements to transferring employees. There are ‘best practice’ procedural requirements we can advise you upon, particularly as they relate to trial periods.
In short, buying the assets of the businesses avoids the possibility of inheriting historical liabilities or claims that might be made against the company that is selling the business.
If you are considering buying a business, please contact us for good legal advice that will give you peace of mind.