Business Sale & Purchase

A business sale & purchase in Victoria involves the legal transfer of ownership of a business from a seller to a buyer. This can include a wide range of assets such as property, inventory, intellectual property, contracts and goodwill. The transaction can involve either the sale of the business assets or the sale of shares in a company. This process is governed by various laws including the Sale of Goods Act 1958 (Vic), Fair Trading Act 1999 and other regulations depending on the industry.

Necessary Searches

The searches required in business sale and purchaser transactions vary widely depending on the type of business involved.

The safest course of action is to obtain as much relevant information as possible such as:

• Company name search
• Business name search
• Trademarks, designs, copyright and patents
• Motor vehicle registration
• Local council health department – health orders
• Certificate of title/register search statement
• Liquor licence search
• Planning certificates
• Usual conveyancing searches whether the freehold is being purchased or not
• Usual lease searches, if leasing land and also remember to obtain a copy of the lease as it is essential you check its terms, especially the remaining period of the lease, whether there are any options and the termination rights
• Bankruptcy search for individuals
• PPS Register searches
• Any other relevant permissions or information related to regulatory matters necessary to conduct the specific business such as regulation by Consumer Affairs Victoria, licensing of aged care facilities, pharmacies, post office outlets and newsagencies, food handling and product safety standards and regulations, the Firearms Act 1996(Vic) and the Control of Weapons Act 1990 (Vic)

Section 52 Statements

Section 52 statements can get both purchaser and vendor practitioners in trouble.

The lawyer for purchasers may be sued for failing to advise that a section 52 statement should be obtained from the vendor. And that the vendor’s failure to provide a section 52 statement entitles the client to rescind the contract.

The lawyers for vendors may be sued for failing to advise that a section 52 statement must be provided before the purchaser signs the contract or pays a deposit.

Many vendors will have their accountants prepare the business operating report which forms part of the section 52 statement. The remaining part of the section 52 statement is sometimes overlooked because the practitioner does not clarify with the client who is to complete it. Where possible, the practitioner should insist on completing the section 52 statement or at least checking it before it is given to the prospective purchaser.

Practitioners have also made the mistake of assuming that a section 52 statement is not required where there is no stated goodwill being sold in the contract.

Due Diligence

It is important that before finalizing a business purchase, the buyer must conduct due diligence to assess the financial, legal and operational health of the business.

The areas typically reviewed include financial records like profit and loss statements and tax returns, existing contracts like leases, supplier agreements, licenses, permits, intellectual property and employee contracts.

Business Sale

When selling a business in Victoria, legal, financial and operational aspects of the business are important considerations to ensure a smooth transaction and maximize the value of the sale.

Business sales typically involve the transfer of assets, goodwill, intellectual property and possibly the transfer of employees and existing contracts.

The brief transaction types are listed below:

• Asset Sale is where the buyer purchases specific assets of the business such as equipment, inventory, real estate, intellectual property and so on but the buyer doesn’t take on the liabilities of the business unless explicitly agreed upon.
• Share Sale is where the buyer purchases the shares of a company that owns the business, thereby acquiring all assets, liabilities and obligations of the business.

The basic actions, the seller must undertake are listed below:

• Business Valuation is conducted to obtain a professional business valuation to determine the market value based on assets, revenue, earnings before interest, taxes, depreciation or comparable sales in the industry.
• Financial Statements is prepared up-to-date financial records including profit and loss statements, balance sheets, tax returns and cash flow statements for the last 3–5 years.
• Employee Considerations is looked how employee transfer will be managed.
• Business Broker is considered to hire to help find potential buyers, negotiate terms and facilitate the sale process or you can do it yourself.
• Non-Disclosure or Confidentiality Agreement (NDA) is signed to protect sensitive information and the business’s competitive position during the sale process.
• Intellectual Property (IP) is protected to ensure any intellectual property such as patents, trademarks or proprietary processes, is protected and clearly owned by the business.
• Licenses and Permits is checked to make sure all necessary licenses and permits are current and transferable including all the specific regulatory requirements have been met.

Contract of Sale

When drafting the Contract of Sale, it is crucial that is bulletproof as it safeguards both the seller and the buyer, ensuring transparency, legal compliance and minimizing future disputes.

Under the Estate Agents Act 1980 in Victoria, a seller of a small business with a price under $450,000 must provide a Section 52 Statement to the buyer before a contract of sale is signed.

A well-drafted bulletproof Contract of Sale provides clear terms regarding the sale including price, payment structure, handover process and any warranties or representations so that the seller can limit the risk of legal disputes post-sale.

Tax and Financial Planning

When selling a business in Victoria, proper tax and financial planning is crucial to minimize liabilities and ensure that you maximize the proceeds from the sale. The tax implications for the seller will depend on various factors, such as the structure of the business, the nature of the sale and any applicable tax concessions or exemptions.

• Capital Gains Tax (CGT)

CGT is considered in following cases:

• • Whether you’re selling business assets or shares of a company can impact your CGT obligations.
  • The sale of goodwill like the intangible value of the business’s reputation and customer base is usually subject to CGT.
  • If your business includes real estate such as commercial property, it may also trigger CGT.

  If you are a small business owner, you may be eligible for CGT concessions that can significantly reduce the tax payable on the sale.

If you’ve held the business for at least 12 months, you may also be entitled to a CGT discount on any capital gain.

• Goods and Services Tax (GST)

GST may apply to the sale of your business, but there are situations where the sale may be exempt when the business is sold as a going concern.

The following must be met for this exemption:

• • Both parties must be registered for GST.
  • The buyer must continue running the business after the sale.
  • The sale must include all necessary assets like premises, equipment and goodwill.

If the sale includes individual assets like property, equipment or inventory rather than the business as a whole, GST may be payable on the sale of those assets.

Business Purchase

In Victoria, purchasing a business involves a series of legal, financial and administrative steps.

The critical factors to consider are as follows:

• Research and Due Diligence

Before committing to a business purchase, thorough research and due diligence are essential to understand the industry, market conditions, competition and the specific business’s financial performance.

In addition to review key information about the business including financial statements, lease agreements, employee contracts, licenses and intellectual property.

• Heads of Agreement (HOA)

The buyer and seller can create a non-binding HOA outlining the major terms including price, assets included and any conditions. This ensures both parties are on the same page before proceeding to a formal Contract of Sale. It is to note that in some cases, HOA can be binding.

• Contract of Sale (COS) Review

The review of the Contract of Sale is essential to protect buyer’s interests, mitigate risks and ensure that you fully understand the implications of the business purchase. A qualified lawyer will do a comprehensive review of the COS and explain properly to you before you sign the COA.

• Handover Period

It is better to include in the COS about handover period where the seller assists in transitioning the business to the new owner by either providing training or guidance to the buyer on how to operate the business or ensuring a smooth transition by introducing the new owner to key customers and suppliers.

• Employee 

When purchasing a business, you may need to deal with current employees about entitlements and validity of the employee contracts.

Lease

In Victoria, Australia, the lease plays a crucial role when purchasing a business, especially if the business operates from leased premises.

The lease is a critical aspect to consider as it affects the business’s future viability.

The key factors to consider in the lease when buying a business are listed below:

• Lease Term and Options for Renewal
• Rent and Rent Review
• Assignment and Subletting
• Use of Premises
• Lease Incentives or Clauses
• Relocation and Demolition Clauses
• Personal Guarantees
• Dispute Resolution
• Transfer of Security Deposit
• Compliance with Retail Leases Act (If Applicable)
• Condition of Premises
• Liability for Repairs and Maintenance

Council Permits

Applying for a food permit (also known as a food business registration) in Victoria involves several steps to ensure compliance with the Food Act 1984 and local council regulations.

The following are the main types of food business:

• • Cafés and Restaurants is for serving food and beverages for consumption on the premises.
  • Catering Services is for providing food for events and functions.
  • Food Trucks and Mobile Vendors is for selling food from a mobile unit.
  • Food Retailers is for selling packaged food for consumption off-premises like grocery stores, bakeries and so on.
• Planning Permits

Planning permits are crucial for anyone purchasing a business, especially a food business.

The following must be done:

• • The purchaser must check planning schemes and permits to ensure the premises can lawfully be occupied for the required purpose.
  • The vendor has obligations under the contract to ensure the business premises can be lawfully used.
  • The vendor must advise purchasers to check planning schemes and permits.
  • The purchasers must know of the risk that the vendor may not comply with the relevant planning scheme requirements.

• Search Council

You can Search Your Council to find more about it.

• Food Safety Supervisor Course

You must undertake Food Safety Supervisor Course to apply for certificate.

• Food Safety Program

Depending on your business type, you may need to develop a Food Safety Program that outlines how you will manage food safety and hygiene practices.

• New Application

In new application, you must have layout plans of your food premises indicating food preparation areas, storage and customer areas.

• Council Inspection

Whether new or transferring permit, the Council will conduct site inspection where a Council officer will visit your premises to ensure compliance with food safety and hygiene standards and regulations. In addition, periodic inspections by Council officers may be undertaken.

• Ongoing Compliance Obligations

Once you have your food permit, you must adhere to ongoing obligations including:

• • Maintain Food Safety Practices which implement and maintain your food safety program and training for staff.
  • Regular Inspections is to be prepared for routine inspections by local Council officers to ensure compliance with food safety standards.

Renewal requirements must be informed as fees like as food permits typically need to be renewed annually.

Liquor License

In order to obtain a liquor license in Victoria, you need to follow a structured process regulated by the Victorian Commission for Gambling and Liquor Regulation (VCGLR).

You can either:

• Lodge a new restaurant and cafe licence application
• Transfer an existing licence
• Vary or change your existing liquor licence
• You must take following training:

You must undertake the New Entrant Training.

You must do the Responsible Service of Alcohol (RSA).

You must comply and have approved with council local planning and zoning laws.

The following main types of liquor license is available:

• General Liquor License is for pubs, bars and clubs serving alcohol for consumption on the premises.
• Restaurant and Café License is for venues primarily serving food but offering alcohol.
• Packaged Liquor License is for businesses selling alcohol for off-premises consumption like liquor stores.
• Club License is for registered clubs serving alcohol to members and guests.
• Limited License is for events or functions with a temporary requirement for alcohol service.

Contract of Sale Conditions for Buyer

In COS, the following subject to clause must be inserted, in case-by-case basis:

• Lease
• Finance
• Council Permits
• Liqour License
• Character Check for Liqour License

Background Checks

It is crucial that you must pass the police investigation of background and suitability checks.