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Business Sale or Asset Purchase

Almost all of the business you will be looking at in the micro, small to medium businesses will be a Business Sale. Where the Buyer is acquiring the business assets, plant and equipment, (generally unencumbered), stock, fixtures and fittings, business name, all contact details, emails, phone numbers, websites, business IP, software, systems and taking over the staff, property leases, vehicles, customer base and goodwill of the business. This is generally the best hassle free purchase.

In a Business Sale such as this there may be some contracts for supply or service delivery. Generally these will be required to be renegotiated to the Buyer. However, there are few occasions where this is an issue.

Your Business Broker is able to provide you with information in regard to the Business Sale and what is beiong sold with the business.

Businesses sold as a going concern to do attract GST, however State stamp duty is levied on the Business sale contract or businesses that do not meet the going concern criteria.

What to Consider

With An Asset Sale

Employees: an employee’s current employment contract will usually be with the seller or entities controlled by the seller. When buying the assets, the employment relationship cannot be ‘transferred’ from the seller to the purchaser as employment contracts are personal in nature. In this circumstance, it will be necessary for the seller to terminate the employment contract with the employee and for the purchaser to enter into a new employment contract with each employee. The seller will need to consider the treatment of the accrued entitlements, which can vary depending on the terms and conditions of employment of each employee. Similarly, any employee benefit plans may also have to be acquired or assumed and that can be particularly costly in some situations.

No Assignment: key contracts may need third party consent to be assigned, or may not be assignable at all, thereby reducing the value of the business to the purchaser. Specific arrangements may be required to vest title in the purchaser. For example, the consent of landlords or finance companies may be required for transfer of any property or plant & equipment leases where these are subject to mortgages

Apportionment: the purchase price must be apportioned between various classes of assets, including plant and equipment, land and buildings, stock, and goodwill if applicable. This can cause a conflict between a seller’s preference to adopt their book value and a purchaser’s preference to adopt a higher value to maximise tax benefits. The purchase price can, within relevant parameters, be apportioned between assets sold which may result in tax advantages for the seller.

Tax consequences: for a purchaser, the cost of assets can be reset to their market value at the time of purchase which in most instances will reduce the capital gains tax that might otherwise arise at a future date and result in a benefit to the purchaser. A seller might gain a benefit by utilising tax losses to offset other tax liabilities arising from the sale.

Goods and Services Tax (GST): where all of the assets of a business are transferred the sale may be classified as the sale of a ‘going concern’. This may result in no GST being payable on the transaction. Alternatively, where the sale cannot be categorised as a going concern, a GST liability may arise.

Duties: stamp duty or land tax may be payable on the transfer of land and other real property, depending upon the state in which the assets are located. Stamp duty is generally higher on transfer of assets than shares as discussed above.