GETTING STARTED

I’m thinking of purchasing a business. What do I need to consider?

Every business is different. However, no matter the industry or the size of the business in question, there are a number of key legal and financial matters that you must considering before seriously committing to the purchase of any business.

In our experience, the following considerations are often neglected by purchasers and can potentially have a significant bearing on the success of a business purchase:

1. Why are you purchasing this business? Do you have the personal knowledge to operate the business independently or will you be reliant on others?

2. What are the main drivers of revenue and revenue growth?

3. Are there any key contracts that drive revenue or revenue growth? Can these be maintained following the purchase?

4. What are the main drivers of expenses? Are these likely to change in the future?

5. What is the Vendor’s relationship with the landlord like? Is the landlord likely to approve you as an incoming tenant?

6. What is the operating history of the business like? Are there any key disputes that have arisen recently regarding the products or services sold by the business?

7. Why the Vendor selling the business?

Often, asking the right questions initially can save a significant amount of time, money and stress down the road.

Contact us to discuss how we can assist with preliminary due diligence for your business purchase.

I’m thinking of selling my business. What do I need to consider?

Every business is different. However, no matter the industry or the size of the business in question, there are a number of key legal and financial matters that you must considering before seriously committing to the sale of your business.

In our experience, the following considerations are often neglected by Vendors and can potentially have a significant bearing on the success of a business sale:

1. How reliant is the business on your efforts, contacts or expertise? Will this limit the pool of potential or suitable Purchasers?

2. Are there any key contracts that drive revenue or revenue growth? Can these be legally transferred to an incoming Purchaser?

3. Have you provided any personal guarantees to suppliers or other creditors? Can these guarantees be withdrawn prior to settlement?

4. Is any equipment that you are selling subject to finance? Will you be able to discharge this finance at or before settlement?

5. What is your relationship with the landlord like? Is the landlord likely to create roadblocks or refuse to transfer your lease?

6. What is the operating history of the business like? Are there any key disputes or other legal issues that might create problems for an incoming Purchaser?

7. Do your financials paint an accurate picture of the business’ past performance?

8. Have you made any statements or other claims regarding the business, whether personally or through an agent or broker?

Often, asking the right questions initially can save a significant amount of time, money and stress down the road.

Contact us to discuss how we can assist with preliminary due diligence for your business purchase.

DISCLOSURE STATEMENTS

What is a Disclosure Statement?

A Disclosure Statement is a document that a Vendor must, in certain circumstances, provide to a Purchaser before the Purchaser enters into a Contract of Sale for a business. This is because the Disclosure Statement contains certain critical information regarding the business being sold.

Often, this document is referred to as ‘Section 52 Statement’. This is because the requirement for this document is imposed by s52 of the Estate Agents Act 1980 (Vic).

Specifically, s52 of the Estate Agents Act 1980 (Vic) provides that a Disclosure Statement (in a form prescribed by the Act) must be given to a Purchaser before accepting a deposit or before obtaining the signature of a Purchaser in respect of a binding contract for the sale of a small business.

Critically, the requirement for a Disclosure Statement under s52 only applies to a ‘small business’. At the time of writing, this means that the requirement only applies to businesses with a value of up to $450,000.

For Purchasers

Once you receive a Section 52 Disclosure Statement, it is critical that you examine the document carefully and obtain legal and financial advice.

If you have not received a Section 52 Disclosure Statement, or if you have received a Section 52 Disclosure Statement that contains incorrect, false or misleading information, s52 of the Estate Agents Act 1980 (Vic) provides a number of powerful remedies, including an ability to immediately terminate a contract and/or receive a refund of a deposit. Significantly, these remedies apply up to 3 months after settlement.

Haven’t received a Section 52 Disclosure Statement? Received a Section 52 Disclosure Statement that contains incorrect information?

Contact us to find out how we can help.

For Sellers

To further reiterate the importance of a Disclosure Statement, s52 of the Estate Agents Act 1980 (Vic) contains a number of ‘purchaser friendly’ remedies in the event a Disclosure Statement is not provided, including the right for a Purchaser to immediately terminate a contract and/or receive a refund of a deposit. Significantly, these remedies apply up to 3 months after settlement. It is therefore absolutely critical that you, as a Vendor, ensure that you provide a Disclosure Statement in accordance with the requirements of s52.

Are you involved in a dispute regarding a Section 52 Disclosure Statement? Has a Purchaser raised concerns in relation to statements or representations made by you in the course of a business sale?

Contact us to find out how we can help.

TRANSFERRING A LEASE

How does a Transfer of Lease work?

A transfer of lease is a significant part of many business transactions.

Generally, a transfer of lease can generally only take place once a binding Contract of Sale is in place. However, even in the best of circumstances, securing a transfer of lease is not a sure thing. Therefore, it is vital that the sale of any business that relies on a physical premises is made conditional on the successful transfer of the lease for that premises.

The first step in a transfer usually requires a Purchaser to provide a formal application to the landlord (generally through the Vendor), which will often include supporting information such as business references and financials.

Where the business premises is a retail lease for the purposes of the Retail Leases Act 2003 (Vic), s61 of the Retail Leases Act 2003 (Vic) applies to the transfer.

Significantly, s61 of the Retail Leases Act 2003 (Vic):

1. Requires a landlord to deal with the application expeditiously, once any relevant information has been provided;

2. Requires the Vendor to provide the Purchaser with a copy of any Disclosure Statement concerning the lease in question;

3. On request by the Purchaser, requires the Vendor to ask the landlord to provide an updated Disclosure Statement;

4. Where the transfer concerns the sale of an ongoing business from the premises in question, requires the Vendor to provide a Purchaser with a further Disclosure Statement in the form prescribed by s61(5A) of the Retail Leases Act 2003 (Vic).

Once the Purchaser’s application has been approved, a Transfer of Lease will generally be prepared, which will then be signed by each of the parties prior to or at settlement.

Need assistance with a transfer of lease?

Contact us today to find out how we can help.