Companies, NSW Conveyancing and NSW Business and Franchise

“ Contents ”

“ Australian Competition & Consumer Commission Australian Securities and Investment Commission ”

“ Companies, Trusts, Partnerships and Superannuation Personal Property Securities ”

“ This publication is designed to assist with the set-up of a new business structure, the acquisition of an existing structure and the change from one structure to another by covering the essential elements, advantages and disadvantages of each possible structure in relation to income tax, capital ... ”

“ Example 1 – Tax advantages of a vendor selling shares Tax advantages of a vendor selling shares in the company rather than the company selling the business ”

“ Taking good instructions The use of the precedent Retainer Instructions ensures that all important issues are considered, instruction which cannot be contradicted later recorded, costs discussed, and the scope of the retainer clearly defined. ”

“ This publication is designed to assist with the set-up of a new business structure, the acquisition of an existing structure and the change from one structure to another by covering the essential elements, advantages and disadvantages of each possible structure in relation to income tax, capital ... ”

“ Business structures The choice of the entity that is to be used to purchase and operate the business must be made between sole trader, partnership, company or trust and documented accordingly. ”

“ Some preliminary issues that may need to be considered and agreements that a vendor and purchaser may enter into before or while negotiating the terms of the purchase contract follow. The heads of agreement for sale are negotiated based on limited information provided by the vendor either directly ... ”

“ Usually a vendor, or their agent, will require purchasers to enter into a confidentiality agreement often called a nondisclosure agreement before financial and other information about the business is disclosed. Sometimes this is required by brokers before even the name of the business will be ... ”

“ It can be highly advantageous to the purchaser, particularly in a strong market or with an attractive business, to negotiate a period of exclusivity. During this period the vendor will not be able to negotiate with anyone else. This will allow the purchaser sufficient time to conduct their due ... ”

“ Having agreed in principle on the key terms of the purchase and before beginning the process of due diligence and the drafting of the agreement, a general understanding of the key terms of a complex transaction might be set out in a Heads of Agreement which although not binding serves to record a ... ”

“ Due diligence generally involves making reasonable investigations before deciding to enter into any investment so as to minimise, or at least understand, any risk involved. For a purchaser this means making all possible enquiries to ensure that the position with the ownership, finances and ... ”

“ Unlike the sale of real property, there are no legal requirements for disclosure for a sale of a business, except in relation to the assignment of a retail lease, which requires the vendor to provide a copy of the prescribed disclosure statement. It is therefore important for the purchaser to ... ”

“ There is no prescribed form for a contract for sale of business. As with conveyancing, the agreement for sale of business is normally drafted by the vendor’s legal representative. However, unlike conveyancing, there is no requirement that the draft contract be made available before or during ... ”

“ The By Lawyers Uniform Contract for Sale of Business is widely used. It uses uniform terms and conditions, with all additions and variations made in the transaction summary. ”

“ It is sometimes agreed that the company that owns and conducts the business will be sold rather than the business itself. This involves the sale of the shares of the company, rather than the sale of the company’s assets. Whilst there may be savings in stamp duty and possible tax and other ... ”

“ Competing motivations Most businesses have a component of goodwill and a component of plant and equipment in their value. When reporting the business sale in the next income tax return, the vendor must apportion the price as between goodwill and plant and equipment. If the contract is made at arm’s ... ”

“ Where the business includes motor vehicles the contract can and should specify them and provide for their formal transfer via Transport for New South Wales (TfNSW). ”

“ For licensed premises, the liquor licence is usually the most important asset of the business and can be the most important part of the sale of business transaction. It can also be the most complex part of the transaction, with the potential to cause the most delay. It is important to commence the ... ”

“ The contract should provide for the transfer of rights to any domains, websites, email addresses and social media accounts which are key assets and marketing tools of the business. ”

“ If the business has employees the purchaser may or may not want those employees to continue and the employees may or may not wish to do so. As an employment relationship is personal between an employer and employee, under general contract law principles the employment contract cannot be ... ”

“ Every business name must be registered unless the proprietor is trading under their own name. Although business names are not strictly ‘intellectual property’ in the sense that trade marks are, it is clear that they can have substantial value. The sale of a business will usually include the ... ”

“ Trade mark registration can be a very valuable business asset. Trade mark registration, including whether the vendor or another entity holds that registration, should have been confirmed prior to contract, ideally as part of the purchaser’s due diligence. Trade marks can be searched using IP ... ”

“ Transfer duty A nominal duty of $10 is payable on the contract and duplicate. ”

“ The objective as always is to structure the acquisition so that ongoing tax minimisation is achieved and the minimum tax liability arises from a subsequent sale. The tax rates applicable to the proceeds of a subsequent sale depend on whether the asset sold is a revenue asset or a capital asset. ... ”

“ Example 1 – Tax advantages of a vendor selling shares Tax advantages of a vendor selling shares in the company rather than the company selling the business ”

“ Agreements The sale of a business will usually include the assignment of any contracts relevant to the business from the vendor to the purchaser and the By Lawyers Uniform Contract for Sale of Business provides for this by requiring the vendor to provide to the purchaser assignments of all ... ”

“ The contract may provide for various conditions to be met before the sale can be completed. Vendor training of the purchaser is a common one. There may also be the need to transfer a licence, such as a liquor licence, before the purchaser can start trading, or for the assignment of the lease. The ... ”

“ So far as time for completion is concerned, the contract stipulates a completion date, which usually is not of the essence but can be made so by a notice to complete. If time is important – for instance, just before Christmas trade – a special condition making time of the essence can be found in ... ”

“ Depending on the type and size of the business it may be necessary to adjust some of the following: rent and outgoings; ”

“ Searches to be conducted immediately prior to settlement may typically include: ASIC for company details; ”

“ Following settlement and the provision by the vendor of necessary documents where applicable, actions to consider include: transferring registration of motor vehicles; ”

“ When finalising a matter it is important to terminate the retainer by sending a letter to the client reporting on the matter. This informs the client in writing that all work on the matter is complete and that no further work will be undertaken unless the firm is otherwise instructed. If the matter ... ”