Business questions.

Buying and selling a business, the contract, tax, GST, the lease, employees and restraints.

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Should I sell the business or sell the company?There are two ways to sell. You can sell the business and its assets, or you can sell the company that owns the business. Selling the assets is far more common, because a buyer who takes the company inherits its whole history, including liabilities they cannot always see. A share sale can carry real tax advantages for a seller, but it asks a great deal more of the buyer.Read the answer →What is involved in selling a business, and how long does it take?A sale usually runs from a heads of agreement, to a contract, through the buyer's due diligence, to settlement and a set of adjustments. Along the way the lease, the licences, the employees, the assets and the digital accounts all have to be dealt with. How long it takes is driven by finance, landlord and franchisor approvals, and how ready the paperwork is.Read the answer →Do I need a written contract to sell my business?A business sale does not have to be in writing to be valid, and small operations do sometimes change hands for cash. But writing is needed to claim the GST going concern exemption, Victoria requires a written statement of information for a small business, and the contract is what records the apportionment, the warranties and the treatment of the lease and staff. A handshake sale leaves money and risk on the table.Read the answer →What is a section 52 statement when selling a small business?In Victoria, a seller of a small business must give the buyer a disclosure statement under section 52 of the Estate Agents Act 1980 before the buyer signs or pays a deposit. It cannot be contracted out of, part of it must be certified by an accountant, and if it is missing, deficient or in the wrong form the buyer can avoid the contract and get their money back.Read the answer →How do I protect confidential information when selling my business?A buyer needs to see inside the business to commit, but letting financials, customer lists and operations loose can damage the business if the deal falls over or staff and customers learn of the sale before you are ready. The protection ranges from a confidentiality agreement to firmer structures such as an option or a conditional contract, chosen according to how much is at stake.Read the answer →Is a heads of agreement binding when selling a business?A heads of agreement records the main terms the parties have agreed before the lawyers prepare the contract. It is usually not binding, except for clauses clearly meant to bind, such as confidentiality and exclusivity. It is a useful map of the deal, but a lot of work and negotiation still sits between it and a signed contract.Read the answer →What is due diligence when buying or selling a business?Due diligence is the buyer's investigation of the business before they commit, covering ownership, finances and operations so the risk can be weighed against the price. It includes a set of public searches and, often, interviews with key people under confidentiality. Sellers are expected to disclose and assist, and a seller who will not is a warning sign.Read the answer →Will I pay tax when I sell my business?Usually yes, but how much depends on what you are selling and how you are structured. The sale splits into revenue assets, such as stock and equipment, taxed as income, and capital assets, such as goodwill, taxed under the capital gains rules. With the right structure and the small business concessions, a qualifying capital gain can sometimes be reduced heavily, or to nothing, so the planning matters more than almost anything else in the deal.Read the answer →What are the small business CGT concessions?They are four concessions in the Income Tax Assessment Act 1997 that can sharply reduce, or remove, the capital gains tax on selling a qualifying small business: the fifteen-year exemption, a further small business reduction, a retirement exemption, and roll-over relief. Eligibility turns on tests about the size of the business and the assets and your circumstances, and they reward a structure set up well before the sale.Read the answer →Is the sale of my business free of GST? (the going concern exemption)It can be. The sale of a business as a going concern is GST-free where the seller supplies everything needed to keep running it, carries it on until the day of sale, both parties are registered for GST, and they agree in writing that it is a going concern. The conditions are read strictly, and getting them wrong leaves the seller carrying a GST liability they may struggle to recover.Read the answer →How is the sale price split between goodwill, plant and stock, and why does it matter?Most of a business's value sits in goodwill and in plant and equipment, and how the contract splits the price between those, and across stock, intellectual property and any restraint, changes the tax for both sides. Seller and buyer usually want the split drawn differently, and if the contract is silent the ATO can step in and reset it. Agreeing the apportionment in the contract is the safer course.Read the answer →What happens to the lease when I sell my business?If the business runs from leased premises, the buyer either takes an assignment of your existing lease or enters a new lease with the landlord. Either way the landlord's consent is needed, retail premises bring extra disclosure, the buyer takes on the lease obligations such as insurance and a security deposit, and the seller should make sure they are released from any guarantees. A lease that will not transfer can derail the whole sale.Read the answer →What happens to my employees when I sell the business?Employment does not transfer automatically. The buyer chooses who to offer work to, and the buyer is not obliged to take anyone. Leave and entitlements are the seller's responsibility up to settlement, and are either paid out or adjusted in the buyer's favour. Long service leave continuity is protected by law and must be recognised by the buyer whatever the parties agree.Read the answer →Can the seller be stopped from competing after the sale? (restraint of trade)Yes. A sale contract normally restrains the seller from running a similar business nearby for a period, and from poaching the staff and customers. The restraint has to be reasonable in area and time to be enforceable, which is why these clauses are drafted carefully, often in cascading steps, and why directors and shareholders are usually asked to sign up too.Read the answer →What does a contract for the sale of a business cover?It identifies the parties and what is being sold, sets the price and deposit, and deals with the conditions, warranties, the lease, the employees, the restraints, risk and settlement. There is no prescribed form in Victoria. The detail, especially the line between what is in and out of the sale, is what prevents disputes later.Read the answer →What is an earnout, and how do vendor finance and retentions work?These are ways of bridging price and risk. An earnout pays the seller more if the business hits agreed targets after the sale. A retention holds back part of the price to secure something the seller has promised. Vendor finance is where the seller effectively lends part of the price. Each shifts risk, and each depends on careful drafting and a check of the tax.Read the answer →How are digital assets transferred when a business is sold?Domains, websites, email addresses and social accounts are often core business assets, and the contract should provide for their transfer. Some platforms allow a transfer, some only through a change of administrator, and a few prohibit it outright, so the practical steps vary by platform. If the company itself is sold, the accounts usually stay put because the account holder has not changed.Read the answer →What happens to licences when I sell? (liquor, food and others)Many businesses cannot trade without a licence, and a licence usually has to be transferred to the buyer or reissued to them rather than simply handed over. A liquor licence goes through Liquor Control Victoria, food and other licences have their own processes, and a licence with a separate market value is treated as its own asset for tax. A licence that cannot pass across can even put the GST going concern treatment at risk.Read the answer →What is different about buying or selling a franchise?A franchise sale carries extra layers. The franchisor's consent to the transfer is usually required and often comes with its own conditions, franchise disclosure sits on top of the ordinary small business disclosure, and the franchise agreement, the systems and often the lease transfer with the business. It is worth getting advice specific to the franchise before you commit to a price or a timetable.Read the answer →What is goodwill when you sell a business, and how is it taxed?Goodwill is the part of a business's value that comes from its ability to attract and keep customers. It is usually the largest part of the price, and it is where the capital gains concessions bite, so how it is treated matters. For a long-established business much of the gain can be taxed concessionally, but goodwill does not exist for every business.Read the answer →Is there stamp duty when you buy a business in Victoria?Generally there is no stamp duty on the sale of a business itself in Victoria, so the goodwill, plant and stock usually pass without duty. But duty still applies to a few things that often ride along with a business sale, chiefly motor vehicles and any real property included, so it is not quite a duty-free transaction.Read the answer →How is stock handled when you buy or sell a business?Stock is usually dealt with separately from the main price. Often the buyer pays for the stock on top of the purchase price, valued at a stocktake just before settlement, with a cap agreed in the contract. How stock is valued and paid for is commonly negotiated, and it has its own tax treatment.Read the answer →Can the buyer pull out of a business sale?It depends on the contract and on a few statutory rights. A buyer can usually walk away if a condition is not met, such as finance or due diligence, or during a cooling-off period where one is provided. On top of that, a defective disclosure statement or a misrepresentation can give the buyer a right to avoid the contract, sometimes with the deposit back.Read the answer →