Selling a Business / Franchise

If you are considering selling a business or franchise, Hutchinson Legal can provide practical legal advice and assist you with the process.

If you are planning to sell a business or franchise, there are many factors to consider which include the decision to sell through a business agent or on your own, your understanding of the procedures for the transfer of valid business licenses, the consideration of a purchaser trial period and related timing, along with the broad range of associated tax implications and possible restraints of trade.

We can draft the Contract of Sale of Business including drafting special conditions that suit your particular situation, arrange for the transfer of the lease and any licences or permits needed to operate the business, advise you regarding any security interests over the business assets that must be discharged, review the adjustments and arrange for settlement.

We have extensive expertise to ensure that settlements are not delayed due to lack of familiarity with procedures and documents. We can prepare contracts or carefully screen agreements to ensure that your interest is protected.

What is the PPSR and how does it affect my sale of business?

The Personal Property Securities Register (PPSR) is a government register of security interests in personal property. In a sale of business, it is common to find PPSR registrations against the business’ assets, particularly where goods are supplied on credit.

You will be required to arrange a discharge of these security interests from the secured party. For example, if the business assets include a vehicle which has been financed, the financier would have registered their security interest in the vehicle on the PPSR. You will be required to pay out the loan at settlement, and the financier will discharge the PPSR registration.

How do I transfer the lease to the purchaser of my business?

There are a number of steps that must be followed to transfer the lease to the purchaser of the business. These are:

Ask the landlord for an updated Disclosure Statement. If this is not given within 14 days, then you do not need to provide this to the purchaser.
Prepare a Disclosure Statement and give this to the purchaser and the landlord. This is needed for you and any guarantors under the lease to not continue to be bound by the lease after settlement.
Give the purchaser the updated Disclosure Statement received from the landlord as well as the Disclosure Statement from when you entered into the lease.
Request the consent of the landlord to the transfer of lease. The landlord will ask for information about the financial resources and business experience of the purchaser, and usually liaise directly with the purchaser to get this information.
The landlord must reply to your request for consent within 28 days, or they are deemed to have consented.
The purchaser’s solicitor will prepare the Transfer of Lease documents for all parties to sign.

Your lawyer will assist you with this process as part of the sale of your business.

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How do I transfer the business name to the purchaser of my business?

First, you will need to know your ASIC Key. If you do not know it, you may be able to get it from your accountant, or you or your lawyer can request it from ASIC.

Using your ASIC Key, you must login to ASIC Connect. If your business name is not linked with your ASIC Key, you must link it. You can then apply to transfer the business name.

Your will receive an email with the business name transfer number. This is the number you hand over to the purchaser at settlement, which enables them to register the business name in their own name.

Do I have to pay GST on the sale of my business?

The sale of a business may be GST-free as a supply of a going concern. For this exemption to apply, you must transfer to the purchaser all things necessary for the purchaser to continue to run the business. Both parties must also be registered for GST.

A mere sale of assets without premises, business name, employees, etc. will not meet the requirements of a going concern and will usually attract GST.

We recommend obtaining the advice of your accountant regarding the GST treatment of the sale before your lawyer can prepare the Contract of Sale of Business.

What is a Section 52 in relation to a sale of business?

A Section 52 is a document prepared by your accountant that sets out the financial performance of the business over the last two years and the current financial year up to the most recent quarter. If this document is not provided to the purchaser before they sign the Contract of Sale of Business, the purchaser can pull out of the Contract.

The requirement to provide the Section 52 only applies for sales of a small business for below a certain price. If the sale is above this price, the Section 52 is not required.

What employee entitlements am I required to pay out on the sale of a business?

For any employees not remaining with the business, you are required to pay out their entitlements.

For employees remaining with the business, the following applies:

Annual leave- the purchaser can decide whether to recognise the employees’ service for annual leave. If they do not, you are required to pay out the employees’ annual leave.
Personal Leave- personal/sick leave cannot be paid out. There will usually be an adjustment to the purchase price for a percentage of the value of the personal leave.
Long service leave- it is an offence for the employer and the employee to pay out long service leave. There will usually be an adjustment to the purchase price for a percentage of the value of the long service leave

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What is a restraint of trade in relation to a sale of business?

A restraint of trade is a restriction on the vendor, and usually its directors or majority shareholders, to prevent that person from undertaking certain activities a certain distance from the premises for a certain amount of time after settlement.

Usually the activities are that the vendor must not be involved in any way in a business of the same or similar type as the business being sold. It may also include not soliciting customers of the business or employees of the business.