Introduction

Not all sellers of a business prepare a contract for sale prior to the business being sold. In circumstances where a competitor offers to buy out a business, the buyer will prepare a contract known as an Acquisition Contract.

A Sale of Business is conducted in a similar way to a sale of land: exchange of contracts, followed by a period in which the purchaser makes inquiries and the vendor prepares for settlement, and ending in settlement:

Business Acquisition Generally

There are no statutory disclosure requirements for the sale of a business, so purchasers need to be careful about what they are buying. This means carrying out due diligence either before or after a contract is entered into.

Business Acquisition Contract

No particular form of contract is prescribed by law.

A well drafted Acquisition Contract lists everything that comprises the business being purchased. The contract also outlines the obligations of the parties. A written contract is prudent and necessary in order to:

(a) Provide evidence of title to the various components of the business.

(b) Define precisely when the vendor’s obligation to pay outgoings and collect revenue ends, and the purchaser’s begins.

(c) Claim the GST ‘going concern’ exemption. (See a New Tax System (Goods & Services Tax) Act 1999 Sect 38.325)

(d) Non-disclosure. If the sale does not proceed, the vendor would usually prefer to have this kept confidential.

FULL COMMENTARY WITH PURCHASE

This is not legal advice given by Precedents Online or its Authors.