Purchasing a Business in NSW: Important Things You Need to Know

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Purchasing a business

Business LawPurchasing a Business in NSW:Important Things You Need to KnowMarch, 2015By Lauren Moroney, Business Lawyer

11. Undertake Due DiligenceAs a purchaser, you should conduct an initial assessment of the business to satisfy yourself that it is a viable purchase.Home

42. Arrange Your FinanceIf you need to borrow funds, your lender will generally require security for the loan including a Mortgage, Personal Property SecurityRegistration and Personal Guarantees by Directors of the purchaser if the purchaser is a company.Home


1. Undertake Due DiligenceThis typically involves an evaluation of the sales, profits, assets, financial records, overheads, salary for the owner, stock availability and key personnel.

If required, we can recommend suitably trained people who can assist you with this assessment.Home5

2. Arrange Your FinanceYou need to ensure that you have sufficient funds to fund the purchase.

You will need to factor in Stamp Duty and unless you are purchasing a "going concern" business, GST.Home66. After CompletionAfter completion there will still be a few things that must be attended to.

This may include:Paying Stamp Duty;Registering the business name; andLodging anyCommercial Leasedocuments required to be registered etc.Home19

2. Arrange Your FinanceYou should ensure that you are well informed about the terms of any Loan and the obligations that you are taking on.Home83. Decide Your Purchasing EntityA prudent purchaser will have regard for risk (e.g. exposure of your assets to liability) and taxation minimisation when deciding on the appropriate entity to use topurchase the business.Home

93. Decide Your Purchasing EntityThe usual options include sole trader, partnership, company, or trust, or a combination of one or more of thesebusiness structures.

When considering your options, we recommend you start with the best option from arisk managementperspective.Home10

3. Decide Your Purchasing EntityYour accountant should then assess its effectiveness from a tax minimisation perspective... and adjustments to the structure can be made as required.Home114. Review The ContractIf you require additional terms to be inserted into the Contract, or terms that are in the Contract to be deleted or amended, the time to attend to same is BEFORE you sign the Contract.Home


4. Review The ContractAfter the exchange of the signed Contracts between the parties, both parties will be committed to the sale and will need to complete all of the things necessary to perform their respective obligations under the Contract by the designated completion date.Home14

5. Undertake a Legal Due Diligence Either Pre or Post ExchangeA due diligence may take place before or after exchange of contracts.

You may choose to undertake the due diligence after exchange of contracts if you are concerned about locking the seller into a sale.Home


5. Undertake a Legal Due Diligence Either Pre or Post ExchangeDue diligence that takes place between exchange and completion is a more traditional approach however, if time permits, a pre-exchange legal due diligence is the preferred option, because you are not bound by a contract.Home175. Undertake a Legal Due Diligence Either Pre or Post ExchangeThe extent of legal due diligence is generally governed by three factors:

Your understanding of the business to be purchased;The time available to conduct the due diligence;Your budget for the due diligence.Home186. After CompletionAs you are now running a new business, you should also consider:

Whether you need to register for GST and/or require licences to operate the business;Protecting your intellectual property;Understanding your taxation and legal obligations;Public liability;Home206. After CompletionArranging the relevant insurances including workers compensation;Professional indemnity and income/accident protection;Accessing funds to see you through quiet cash flow periods (e.g. an overdraft facility); andObtaining assistance and training from a qualified business advisor etc.(this list is not exhaustive)