Prior to purchasing a business it is prudent to obtain legal advice to ensure that you are aware of your rights and obligations.
There are several matters which you should be prepared to discuss with your lawyer when obtaining advice on the purchase of a business, including:
WHAT YOU ARE PURCHASING
A business comprises of assets which are most commonly owned by entities such as:
- A sole proprietor;
- A partnership;
- A trust; or
- A company
It is important that you are aware as to whether you wish to purchase the assets of the business directly or whether you will be purchasing an entity, such as a trust or company, which owns the assets of the business. This will affect the advice your lawyer gives you.
ASSETS OF A BUSINESS
Regardless of whether you are purchasing assets directly, or an entire entity, it is important to consider the following assets when determining whether or not the purchase price is reasonable.
- Goodwill;
- Equipment;
- Leases;
- Employees;
- Intellectual property;
- Business name;
- Customer lists;
- Stock-in-trade;
- Work in progress, creditors; and
- Debtors.
The above items are all likely to affect what may be a reasonable purchase arrangement for a business.
ASSIGNMENT OF LEASES
Businesses will often be operated from a leased premises. As such, a purchase of a business will often be subject to a landlord approving the proposed purchaser of a business taking over the lease.
It is not uncommon for landlords to require incoming lessees to provide personal guarantees from the individuals operating the business.
As such, if you propose to purchase a business, it is important that you obtain copies of any relevant leases so that your lawyer can provide the necessary advice.
RESTRAINTS OF TRADE
It is prudent to ensure that business purchase agreements contact clauses which prevent the seller from operating a similar business to your detriment.
Restraint of trade clauses prevent sellers from operating similar businesses for a certain time within a certain geographical area.
Restraint of trade clauses are extremely important for purchasers’ businesses and must be drafted carefully to ensure that they are effective.
EMPLOYEE’S ENTITLEMENTS
It is important to determine whether the business owes any entitlements to employee at the date of settlement.
Entitlements owing to employees at the date of settlement should be accounted for so that an adjustment can be made in favour of the buyer so that the buyer is not immediately liable for such entitlements upon purchasing the business.
If you require advice on the purchase, or sale, of a business, please do not hesitate to contact Lynn & Brown Lawyers.
