Selling your Business

A step by step guide

Below is an explanation of the entire sale of business process. Most of this work is carried out by your solicitor

Contract

The first step is to create a Contract for Sale. This step is often left until a buyer has been found. It is helpful to have one earlier, when the business is first offered for sale. This helps the sale process as the Contract contains much useful information for a prospective purchaser. This can help a purchaser make a decision more effectively than just looking at brochures prepared by a business broker.

Before committing to a Contract, the purchaser’s solicitor will normally ask for some amendments. Your solicitor will suggest which requests should be agreed to and which should be politely declined, and why.

Once a buyer has been found and the terms of the Contract are agreed, the matter proceeds to an exchange of Contracts.

Exchange of Contracts

During this stage:

• The buyer and seller sign the Contract of Sale.
• The contract becomes legally binding, and a deposit is paid by the buyer. This deposit is often 10% and 20% of the sale price, but can vary.

At this point, the buyer will also start organizing the necessary financial arrangements to complete the purchase.

Between Exchange of Contracts and Settlement

The period between the exchange of contracts and settlement is a critical phase in the business sale process. It typically lasts for 30 to 60 days but can vary depending on the complexity of the transaction and the agreement between the parties. This period is often referred to as the “settlement period”.

During this time, the following steps occur:

1. Due Diligence Finalisation: Although due diligence typically begins before the exchange of contracts, the buyer may use this period to conduct any final checks on the business. This may include reviewing financial records, confirming ownership of assets, and verifying any intellectual property rights.
2. Obtain Financing: The buyer will arrange the necessary financing to complete the transaction. This could involve securing a loan or other funding to cover the balance of the purchase price. Your legal team will liaise with the buyer’s solicitor to ensure the funds will be available by the settlement date.
3. Preparation for Transfer of Assets: You begin preparing to transfer ownership of the assets involved in the sale. This could include:
   • Transferring intellectual property (trademarks, patents, etc.)
   • Assigning leases, contracts, or other obligations to the new owner
   • Preparing for the transfer of any employees (if applicable)
   • Updating business registrations, such as with the Australian Securities and Investments Commission (ASIC) or Australian Business Register (ABR)
4. Settling Outstanding Liabilities: As the seller, you may need to clear any outstanding debts or obligations before settlement. These are normally to remove any security registrations that have been placed on your business to secure loans and leases.

Settlement

This is the final stage of the business sale process. At settlement:

• The balance of the purchase price (the amount remaining after the deposit) is paid by the buyer.
• The legal ownership of the business and its assets is transferred to the buyer.
• Any remaining documentation, such as the transfer of shares, intellectual property assignments, or lease assignments, are finalised.
• You hand over control of the business, including all relevant records, keys, equipment, and any other items agreed upon in the sale.

Once the settlement is complete, the buyer will take full control of the business operations, and you will receive the agreed-upon payment. Your solicitor makes sure the funds are received into the firm’s trust account and then passes these on to you after settlement, and payment of their bill.

Post-Sale Considerations

After the sale is finalised, there may be a few post-sale matters that require attention:

• Employee Transfers: If employees are involved in the business, their employment contracts and entitlements (such as leave and superannuation) may need to be transferred to the new owner.
• Lease Assignments: If the business operates from leased premises, you will need to transfer the lease agreement to the buyer. This will typically be handled by your solicitor liaising with the landlord’s solicitor and the purchaser’s solicitor.
• Ongoing Obligations: If you have any ongoing obligations, such as warranties or non-compete clauses, these will need to be honored or enforced as per the Contract of Sale.

What next?

Selling a business is complex. We provide expert legal services to guide you through each stage of the process. From preparation to post-sale matters, we ensure that your interests are protected and that the sale is as efficient and profitable as possible.

Contact Us Today

Are you considering selling your business? Contact us today to schedule a consultation. You won’t be charged unless you decide to proceed.