When you are ready to sell your business and move on to the chapter, it is important to understand the various aspects that will achieve a successful sale while ensuring your interests are protected. We outline below the important stages in selling your business to help you cover the basics of selling a business.
Before execution of contracts
When selling your business, you as the seller and the proposed buyer must first agree on the key commercial terms such as:
- purchase price
- goodwill and stock in trade
- proposed settlement date
- any special conditions
A contract for the sale of business is then prepared (usually by the seller’s lawyer) to set out all the terms of the sale and details of what needs to be done to finalise the transfer of business to the buyer. All businesses are unique so it is important to ensure the contract is tailored specifically to address all the special conditions of the sale to avoid any ambiguity or dispute that may arise.
Execution of contracts
Once both parties have negotiated and agreed on the commercial terms, the contract will then be executed and exchanged normally by email with the originals to follow in the mail. The deposit is usually paid to the seller, the seller’s solicitor or a broker (if applicable) during the exchange of contract. After the contract is signed by all the parties, it is legally binding, and the parties are obligated to meet the requirements to settlement.
This is the stage where you prepare for settlement. Some of the standard obligations are:
- organise for the transfer of ownership of licenses, plant and equipment, intellectual property, business names etc;
- discharge securities or encumbrances that may be held over your business
- get the landlord’s consent and arrange for the transfer of lease;
- arrange to transfer or terminate any business contracts with third parties such as suppliers;
- arrange the transfer of employees;
- coordinate with the buyer to conduct a stocktake to take over the stock on settlement date at an agreed price.
It is also important to note that during this time, you as the seller is still under the obligation to continue running your business as if your business was not being sold such as maintaining current insurance policies and to sell stock only in the ordinary course of business.
The settlement stage involves transferring the ownership of the business formally to the buyer and ensuring all obligations set out in the contract for the sale of business are fulfilled. There should be a checklist of obligations detailed clearly in the contract for sale to help the parties to achieve settlement.
After the lawyers have verified that everything is in place for settlement, the balance of the purchase price will be paid to the seller. This amount will be adjusted to take into account any upfront payments that the seller has already made or any amounts that you have agreed to share with the buyer such as rent and outgoings, employee entitlements, and agreed value of the stock. Your lawyers will be able to help you with the calculation of the settlement adjustments.
After settlement is completed, all title to, risk and benefit of the business would be passed on to the buyer. If ‘on the job training’ is part of the special conditions negotiated in the contracts for sale, this is the time to step in to offer the handover support to the new owner for the agreed period.
You will also need to consider your ongoing restraint of trade obligations which will bind you for a fixed period after the settlement date. Depending on the terms, the restraint may prevent you from:
- setting up or operating a similar business after the settlement date;
- soliciting with the business' clients or suppliers.
It is always recommended to seek legal advice while planning to sell your business or before entering into a sale agreement. Our commercial lawyers specialise in business sales and understand the various complexities of sale contracts. The team will prepare all the necessary documents and guide you for negotiations. To get further advice call our Melbourne commercial law team on 03 9743 1333, our Perth commercial law team on 08 6183 3753 or email .