Listed below are some of the key issues to consider when contemplating signing a business contract.
Completing Buyer details correctly
It is essential that a buyer completes their name correctly, as an incorrect name may not be easy to fix later on. The simple task of correcting a typographical error may costs precious time and additional legal fees.
Sometimes, a buyer is unsure about whether they want to buy a business in their own personal capacity, in the capacity of a company or in the capacity of a trust and therefore may wish to insert next to their name “and/or nominee”. For the buyer’s nominee to effectively buy the business and to also avoid paying double stamp duty, the buyer must, amongst other requirements, have a specific nomination document in place before the Contract is binding. It is therefore essential that any buyer seeks legal advice on “and/or nominee” contracts prior to signing.
Accurately defining the Business
Before a buyer signs a contract to purchase a business, it is essential to check that “the business” is defined accurately and to check what is included. Such items to consider are:
- A general description of what the type of business is, such as “courier”.
- A description of the business location/address.
- The trading name of business.
- Whether the business has a registered business name and business number.
- Whether the business has any trade marks.
- Telephone and facsimile numbers of the business required to be transferred.
- Email address, domain names and website address of business required to be transferred.
Although, generally all the assets of the business are included in the sale it is important to ensure that any asset of significance to you is specifically mentioned. This will reduce the chance of a dispute, should there be a misunderstanding with the seller as to what is included.
Apportioning the Purchase Price
Because there are tax consequences depending on how the purchase can be apportioned it is important that the buyer speaks to their own accountant about this.
Is there a Lease
More often than not when a business is up for purchase the premises it operates from is leased and the seller will want the buyer to take over that lease.
It is therefore important to ascertain before entering into a contract if there is a lease and whether the business you are buying requires a premise.
If the business you are buying requires a premise and the contract is not on a REIQ business contract it is essential that the condition be included making the contract subject to, among other things, a satisfactory review of the lease and the successful transfer of the lease or entry into a new lease. If the contract is prepared on a REIQ business contract then it is essential that the relevant part of the contract is completed and a copy of the lease provided.
Most times, the seller bears the risk of the assets of the business from the contract date to completion. It is important however to check the contract before signing to determine who bears the risk as this can be changed easily.
This is a very important aspect that most buyers overlook when negotiating and preparing a business contract. Because of the potential liabilities a party can incur it is important that legal advice be sought before entering into a contract about employees.
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