Some Things You Should Consider before Buying a Business in Queensland - Australia
Before a buyer can enter into a contract to purchase a business it is important to seek advice in relation to the most effective structure for use as the purchasing entity.
There can be significant tax savings and other advantages if the correct structure is chosen before a contract is finalized.
Choice of structure can only be made with the assistance of the buyers accountant and lawyer. If these matters are considered at an early stage it may also be possible to ensure that a buyers assets are protected from adverse events.
Below is a list of things that a buyer should have available for the first meeting with their lawyer:
The draft contract ( the seller usually prepares the contract and you should let your lawyer read the draft before it is signed ). If the draft contract or a letter of intent is properly prepared by the broker then this document will contain much of the information required.
Copies of any leases given to you buy the broker or seller together with amending documentation e.g. extensions and variations
Copies of any franchise agreement given to you by the seller.
Copies of any licenses given to you by the seller
Any other material that the broker or seller has given to you at any time including any details about the performance of the business
Contact details for your accountant.
A business contract will impose many obligations on both parties. Some of these will need to be considered very early on in the process, including:
The assignment of a lease or the negotiation of a new lease.
The assignment of a business name and associated licenses
The transfer of obligations relating to employees and their entitlements
GST, Stamp Duty and other tax issues
Restraints of trade
Tuition and training of the buyer
Representations and promises in relation to turnover and profit
Calculation of Purchase Price and deposit
Conditions precedent such as Due Diligence inquiries, finance, etc
The handover of possession.
You should consider your requirements in relation to the above matters before your first meeting with your solicitor.
A Business broker or Lawyer will prepare the contract using a standard document produced by the Real Estate Institute of Queensland ( REIQ). Although the REIQ contract forms the basis of most business sale transactions in QLD it is a lengthy document and it's correct completion requires some expertise. A full understanding of the way in which the standard conditions interact with the schedule is required before the schedule is completed. There are a number of issues created by the standard conditions that need to be carefully handled. Certain of the standard conditions attempt to remove a purchasers rights at intervals during the life of the contract. These kinds of clauses provide that a purchasers right to complain about various issues will only exist for a number of days after the contract is formed. Some of the rights which expire under these kind of clauses are very important rights for a purchaser and include for example the right to complain if a purchaser is not satisfied that the financial figures of the business are accurate. If a buyer neglects to obtain legal advice before signing the contract then the buyer is well advised to obtain legal advice as soon as possible after the contract is signed.
A business contract will almost always include special conditions. These conditions are not regulated in any way and must be carefully checked to ensure that they are acceptable. Any conflict between the standard terms of contract and special conditions must be resolved.
The REIQ business contract is an evolving document and significant changes are made to it by its publishers on a fairly regular basis. We monitor these changes as they occur.
ABOUT THE AUTHOR: Joseph J Riba
Joseph has more than 17 years experience in the profession and is the founder of JJ Riba & Company, a commercial law firm operating in Queensland Australia. J J Riba & Company have worked for more than 10 years with a number of rapidly expanding franchises that operate in every state of Australia. Joseph has managed a number of significant Australian transactions including the sale of the Bright Eyes Franchise system to the American icon sunglass maker Oakley. Joe now works predominantly with start up franchisors and business owners, buyers, and sellers assisting them with advice in relation to transactions.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.