Selling a small business
When selling your business, you will need to decide if you are selling:
- the company itself (i.e. the shares in the company); or
- just the business and its assets.
The business will have to be valued by a business valuer.
You must then decide on the price you are willing accept for the business for.
If a buyer has not already approached you, you will then need to advertise the sale, either personally or through a broker.
A lawyer can provide you only with legal advice. A financial advisor can give you financial advice.
Transfer of Ownership
To make sure that you are transferring all ownership of the rights, responsibilities, liabilities and assets of your businesses, you must understand what these are and ensure that they are included in the Contract for the Sale and Purchase of Business 2021 (NSW).
Assets that you can transfer during a sale of business include:
- goodwill and stock-in-trade;
- contracts with suppliers;
- licenses and permits the purchaser may need to conduct the business;
- leasehold interests, if you are leasing a business premises which the purchaser wants to use;
- your intellectual property rights in the business name or logo; and
- franchise agreements.
Before Exchanging Contracts
A standard contract for the sale of business contains clauses covering all legal requirements under Australian law. However, as all businesses are different, you may need to add special conditions to the end of the contract. The purchaser will conduct preliminary searches, reviews and inspections of the business documents and premises to familiarise themselves with all aspects of the purchase.
Exchange of Contracts
Following completion of all negotiations on the terms of the sale, you and the purchaser each sign an identical copy of the contract and exchange them and the purchaser pays you the deposit. You are responsible for arranging for a time and place for exchange of contracts. After exchange, the contract is legally binding.
During this stage, you are required to fulfil the obligations outlined in the contract. There are standard obligations and may be additional obligations in the special conditions. Some standard obligations are:
- completing all documents required to transfer ownership;
- getting the landlord’s consent to transfer the lease;
- discharging securities, mortgages and any other encumbrances held over your business; and
- maintaining your business’s goodwill.
At settlement, you will have to provide the purchaser with documents passing ownership rights to them and the purchaser may give you bank cheques or deeds. For example, in the case of a share sale, you may give the purchaser:
- share transfers;
- a director resignation document;
- an appointment of directors document;
- approvals for share transfers;
- share certificates; and
- items listed in the second schedule.
The purchaser may give you a:
- bank cheque for the sale price of your business or the shares;
- signed deed of guarantee by the purchasers; and
- deed of guarantee if there is a lessor.
After settlement, the purchaser has to ensure that they have full ownership of the business. To ensure the cessation of your responsibility for assets transferred to the purchaser, your lawyer may:
- cancel licenses and insurance in your name relating to the business;
- hand over any stock or inventory;
- provide the agent with an order to transfer the purchaser’s deposit to you;
- give the purchaser a list of passwords to accounts;
- ensure that you pay out staff leave entitlements for staff the purchaser has not taken on;
- transfer assets into the purchaser’s name; and
- pass on the business client list.
Taxes – including CGT, GST and other costs
You should consider any taxes that may apply, which may reduce the money you end up with after the sale. If you are registered for Goods and Services Tax (GST), you may be liable to pay GST. However, the sale may not attract GST if your business is being sold as a going concern. That is:-
- the purchaser is registered for GST; and
- the business is being sold in return for payment; and
- you are supplying everything to the purchaser so they can continue operating the business; and
- you have agreed with the purchaser that the sale is of a going concern; and
- you intend to carry on the business it is sold to the purchaser.
If you sell your business and make a profit, the profit may be subject to Capital Gains Tax. This tax applies to:
- intangible assets (e.g. intellectual property);
- business assets; and
Tax concessions may be available to you as a small business owner.
The purchaser may have to pay transfer duty on the sale.
The next step
Selling a business can be very exciting but the process can also be rather tricky. It is a good idea to get legal assistance during this time so you are aware of all your risks, obligations and duties as the seller. If you are thinking about, or have already struck a deal to sell your business, contact us to help you through the process.