Sale of Business + Shares

A Contract for the Sale of Business and Shares.  Download in word, save and reuse.






Contract for Sale of Business & Shares in a Company.

Contains the usual provisions in relation to sale of business including:

  • Assets
  • Consideration
  • Deferred consideration
  • Completion
  • Post completion obligations
  • Assignment of Contracts
  • Employees
  • Liabilities
  • Restrictive covenants

Contract for Sale of Business & Shares with variables are included in six schedules for ease of drafting:

  • SCHEDULE 1:Consideration,deposit,business,domain names, email addresses
  • SCHEDULE 2: Equipment:
  • SCHEDULE 3:List of Guarantees
  • SCHEDULE 4:List of Creditors
  • SCHEDULE 5:List of Debtors
  • SCHEDULE 6:Work in Progress (WIP)


Contract for Sale of Business & Shares is 13 pages long



contract for sale of business

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  1. 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:

  1. 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.

  1. 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.

  1. Apportionment of purchase price

The vendor usually has a preference to apportion the purchase price to goodwill. This is usually because consideration for goodwill can be reduced by the capital gains tax concessions for small business.

Conversely the purchaser will usually want the highest amount apportioned to plant and equipment. The reason is that the purchaser is able to claim depreciation and obtains a tax deduction for these items.

The ATO will generally adopt the apportionment shown in the contract, even though there are provisions in the tax legislation which allows the ATO to make their own apportionments.

Where an apportionment is not made in the contract, each party can determine how to apportion the price amongst the assets. It is likely that the apportionment made by the vendor will be different to the apportionment made by the purchaser.

Usually each party will make their apportionment to minimise their tax liability. The vendor and the purchaser would each adopt advantageous positions respectively.

The risk in these circumstances is that the Commissioner of Taxation may review the transaction and impose its own apportionment. This could lead to tax adjustments and penalties for both the vendor and the purchaser.

4.1 Goodwill

The concept of goodwill is defined in case law. The main principles concerning the tax treatment of goodwill were considered by the High Court in Commissioner of Taxation v Commissioner of Taxation v Murry [1998] HCA 42 [1998] HCA 42.

Any consideration for goodwill can be reduced by the capital gains tax concessions for small business. Goodwill does not attach to the assets of a business. The sale of a particular asset of a business (separate from the business itself) does not involve a disposition of goodwill. A partial sale of a business does not involve any goodwill unless that part can stand alone as a separate business.

4.2 Real Estate

Any part of the purchase price apportioned to land will not be tax deductible to the purchaser until the land is sold. Any repairs that are needed to be carried out immediately may not be tax deductible by the purchaser. It is preferable to require the vendor to undertake immediate repairs prior to sale. Usually no tax consequences arise where the business premises are leased. With leased premises, either the vendor will assign the lease or, the purchaser will enter into a new lease with the landlord.

4.3 Plant and equipment

The purchaser will usually want the highest price apportionment to plant and equipment as opposed to goodwill. The purchaser is entitled to claim depreciation and, accordingly, obtains a tax deduction for the capital cost. The vendor usually wishes to apportion less to plant and equipment and more to goodwill.

4.4 Trading stock

The purchaser will usually wish to in apportion the highest possible value to trading stock. There will be an immediate deduction on the sale of the stock. Stock should not be acquired by the purchaser for higher than market value, as that value will be reduced to market value by the ATO for tax purposes and no deduction will be allowed.

4.5 Debtors

The purchaser is unable to claim a deduction for any bad debts assumed from the vendor. Usually the purchaser will agree to receive debts on behalf of the vendor for a commission or fee. If debts are transferred, the purchaser should require an indemnity from the vendor.

4.6 Work in progress

The purchaser is entitled to a deduction for the amount paid to acquire work in progress: s 25.95 Income Tax Assessment Act 1997. When the work in progress is actually billed and recovered the purchaser would be assessable on it at that time.

4.7 Stamp duty on the agreement for sale

(Stamp) duty must be paid on agreements for the sale of business. Duty is payable by the purchaser: Duties Act 1997 s 13.

There will be a stamp duty liability where there is a written or unwritten transfer of dutiable property.

The definition of dutiable property is in s 11 of the Duties Act 1997.

Plant and equipment on its own is not treated as dutiable property unless that plant and equipment is transferred as part of a sale of a business. Attempting to separate the sale of business from the sale of the plant and equipment will usually not result in any stamp duty saving for the purchaser because of the aggregation provision in s 25 of the Duties Act.

Stamp duty is paid at ad valorem rates set out in s 32 of the Duties Act 1997. A quick way to calculate stamp duty is by using the Office of State Revenue’s Duty Calculator for Transfer of Land or Business at

4.8 Stamp duty on Leases

When a transfer of lease is associated with the sale of the business, duty on the transfer of the lease is assessed as a nominal $10.00 in addition to the duty paid on the transfer of business. The duty is on the transfer. There is no duty on the lease itself.

The stamped contract of sale is an important piece of evidence should the purchaser require these for a tax audit or similar purpose at some time in the future. Duty has been abolished on lease instruments first executed on or after 1 January 2008.

  1. The selling entity

Be clear on whether all owners of the business assets are signatories to the contract. Sometimes all the assets of the business are not owned by the same person or company. Some assets may be owned by a company, some by an individual. All parties that own assets of the business need to be signatories to the sale contract.

  1. Due diligence

“Due diligence” is a term used in a number of situations involving either an investigation of a business or person prior to signing a contract. We will refer to due diligence as a process by which a purchaser evaluates a vendor company or its assets prior to acquisition.

The process of due diligence implies that a potential purchaser will have a close look at a business being sold before committing to the sale. The alternative would be to enter a sale contract in reliance on untested assertions, statements, figures and warranties by a vendor or selling agent.

The purchaser’s legal and financial advisors usually handle the due diligence. As part of the due diligence process, the purchaser’s lawyers may negotiate warranties into the contract of sale with the vendor’s lawyers. Such warranties will normally address adverse findings of due diligence.

Due diligence may take place after the exchange of contracts and prior to settlement. In that situation, the focus of the due diligence will be vendor warranties.

If time allows the due diligence is best done before exchange of contracts. This is preferable because the purchaser has the opportunity to avoid the contract completely. If serious issues cannot be resolved, the purchaser can withdraw from the transaction at an early stage and save legal and other costs.

Due diligence is usually undertaken by a team of professionals according to their particular expertise. Often this involves solicitors and accountants. Architects, builders, engineers and valuers are also often called upon for their expertise. A due diligence team may include executives from the purchaser company as well as external experts. The external experts might include scientific or engineering experts in that industry. If the purchaser plans to list the vendor on the Stock Exchange in the near future the external experts might include representatives from a sponsoring stockbroker or the proposed underwriter for the float.

A purchaser will often have limited time for due diligence. Consider using an option to allow time for due diligence within the period of the option.

6.1 Searches

A lessee of business premises has all the privileges and responsibilities of an owner for the period they are the lessee. The client, whether lessee or purchaser of the property should be advised to make inquiries of the property and of the lessor similar to what they would do if purchasing the property. The longer the lease the more extensive the searches should be. You will need to consider the context. For example, when leasing retail shop in a shopping complex, structural issues may not be as relevant as when leasing a free standing building or warehouse for the purpose of installing heavy manufacturing machinery. The following searches are suggested as being important.

6.2 Company search

Obtain a current extract to determine the directors of a vendor company. The lease should be signed by two directors of the company pursuant to section 127 of the Corporations Act 2001. If it is not signed by directors, you will need to know that the person signing has authority to bind the lessor to the lease. You do not want the lessor to later argue that an unauthorised servant of the company purported to enter into a lease when they in fact had no authority to do so.

6.3 Bankruptcy search

Is the other party an undischarged bankrupt or has a petition for bankruptcy been served? A bankruptcy search is a prudent measure where the lessor is a natural person.

6.4 The property

For the reasons below, these are the searches that relate to the property which are necessary:

(a) Title search

(i) Is the lessor the owner of the land?

(ii) Are there other owners?

(iii) Is the property encumbered?

(A) iv. If mortgaged, the mortgagee’s consent will be required.

(b) S 149 Certificate (zoning and planning)

(i) Does the current planning environment allow the proposed use by the lessee?

(ii) Is Development Consent required?

(iii) If there is Development consent are there conditions attached to it?

6.5 Building & pest inspection

(a) Is the building sound?

(b) Are there major works required and are these works likely to be disruptive to the lessee’s business?

You will need to obtain the client’s instructions regarding the specific use of the property. Usually the client will volunteer any special features they require, but it is worthwhile getting into some detail about how the client intends to use the property, what hours they intend to keep and what issues may arise in terms of what the terms of the lease allow.

6.6 Disclosure

There are no statutory disclosure requirements for the sale of a business. It is a good idea to seek disclosure as much as possible in the contract. This eliminates any doubt as to what is being sold.

6.7 Leasing issues

A transfer of lease often forms part of a sale of business. The agreement for sale of business ought to have the current lease attached to it as a disclosure document, and the sale of business is usually conditional upon the lessor granting a transfer or a new lease.

Assignment of a lease usually involves solicitors acting for the vendor (lessee/assignor), for the purchaser (transferee of the lease/ assignee), for the lessor, for any mortgagee, and possibly for guarantors also. Guarantors should be represented separately to avoid conflict of interest. ‘Transfer’ and ‘Assignment’ are interchangeable terms.

A lessee can transfer (assign) the lease. However, a transfer of lease without the consent of the lessor may be a breach of the lease. Consent cannot be unreasonably withheld by the lessor unless the lease expressly prohibits assignment, which is relatively rare s 133 B(1) Conveyancing Act.

In a situation where there is a clause expressly prohibiting assignment, then s 133B(1) of the Conveyancing Act 1900 (NSW) does not operate. The Lessor may subsequently waive the prohibition and impose any condition it desires to be met in the process of doing so.

6.8 Assignment under the Retail Leases Act

The Retail Leases Act 1994 (NSW) contains extra procedures that should be followed when assigning a lease. These act in favour of the vendor of the business, provided the procedures in the Act are followed. The main features to be cognisant of in relation to assignment are deemed consent under s 41 and assignor’s disclosure statement.

  1. Warranties

Ensure the signatories have the power and authority to enter into the contract and they are not insolvent, bankrupt or about to become so. Seek warranties that execution or other process has not been levied against the Vendors or in relation to the Assets. Similar warranties should also be sought in relation to appointment of receivers, trustees or administrators. The Vendor Assets is owned both legally and beneficially by Vendor free from any third party rights and in its possession.

A general warranty that all the information attached to the contract complete and accurate is useful. Consider what if any, specific warranties should be included to deal with aspects specific to the business.

Consider whether any of the profits and losses of the Vendor shown in the contract were affected by any extraordinary, exceptional, unusual or non-recurring income, capital gain or one off expenditure.

The purchaser does not want to see material change in the financial or trading position of the business once it becomes the owner. The same applies to changes in the value of assets or liabilities, turnover, expenses or profitability. Ensure the warranties in the contract reflect this.

Indemnities should be sought from the vendor in respect of a breach of specific warranties. Also, consider specific indemnities in relation to product warranties offered to consumers, purchases on finance terms or layby.

7.1 Restraint of Trade

Restrictive covenants or restraint of trade clauses are included in the main contract of sale and sometimes also separate agreements binding key persons in the vendor business. A restrictive covenant is regarded as a separate asset for tax purposes. Any consideration allocated to a restrictive covenant in the sale contract will be subject to capital gains tax.

7.2 Permits and licenses

The type of business being sold will influence the inquiries that will need to make in relation to business licensing. Different business activities each may attract a separate set of licensing requirements. The main licensing requirements will flow from specific legislation (federal or state) that governs the operation of a particular business.

  1. Identify all licences needed by the business to lawfully run its business at federal, state and local government level;
  2. inspect the originals of these licences to check that they are current and for any conditions;
  3. obtain from the relevant licensing authorities a written confirmation that there is no outstanding breach of the conditions attached to each licence and that all current licence fees are paid; and
  4. Consider if any new or renewed licences will be needed;
  5. Obtain the forms for transfer of licences. The purchaser should obtain these and forward to the vendor prior to settlement.

The Business Licence Information Service (BLIS) offered by the New South Wales Deptartment of Fair Trading is a useful source of information on the range of government licences needed to conduct a business in NSW. Links to is services by clicking here: BLIS.

The local council in which the business operates will also have specific zoning and planning requirements. Check to see whether Development Consent is required to run the type of business being sold. If development consent is required, check to see that it has been granted and what if any, conditions attach to it.

Liquor licence transfers and applications can be quite complex. Liquor licensing is controlled by the NSW Office of Liquor, Gaming and Racing.

  1. Precedents


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Business Acquisition Contract 

A comprehensive 52 page contract for use in which an entity wishes to exchange contracts, conduct due diligence and retain an amount post-completion. Includes clauses covering:

§  Definitions/interpretation

§  Sale and price

§  Passing of risk

§  Deposit

§  Conditions Precedent

§  Period before completion

§  Completion

§  Stock in Trade

§  Debtors

§  Adjustment payments

§  Employment and superannuation

§  Lease of premises

§  Licenses to run the business

§  Requisitions

§  Warranties and indemnities

§  Default

§  GST

§  Confidentiality

§  Stamp Duty

§  Income Tax

§  Utilities

§  Services

§  Claims by clients

§  Dispute resolution

§  Standard ‘boilerplate’ clauses 

Most variables are contained in Schedule 1 for ease of drafting. Comprehensive warranties and a restraint of trade deed for key persons are attached as separate schedules to the main Contract.



© Copyright Kalde & Associates, 2013, Sydney. All rights reserved.

Last Updated: 25/09/2013



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