Making an Offer/Contract Terms
Buying a business through a business broker is a very exciting experience. Once you decide you want to make an offer for a business, you need to understand the process involved.
After you make an offer through your business broker, the next step is becoming familiar with the contract for sale of a business and completion of same. Any business sold in Queensland should be using the standard Real Estate Institute of Queensland (“REIQ”) Sale of Business contract in line with best practice.
It is highly recommended that you engage a solicitor in the preparation of your business sale contract. This applies for both buyers and sellers. The REIQ contract for sale of a business is similar to the standard REIQ contract for sale of a residential property. There are however some important differences. As in all contract negotiation, certain clauses and amendments can be added or altered to the business sale contract (it’s all about negotiation with the other party!). Your business broker in conjunction with your lawyer should be able to advise you on this.
Common features of the standard REIQ contract:
Details of the business being sold:
- What are the details of the business being sold?
- Is the business being sold on a walk-in walk-out basis? If the business is not sold on this basis, what is the value of stock or work in progress?
- How is the purchase apportioned between fixed assets and goodwill?
- Does the business currently have a lease? If so, what are the details?
- Is there any restriction on the vendor’s ability to compete with the vendor’s business in the future?
- Is the vendor offering any tuition for the purchaser?
- Self explanatory, however both the buyer and the seller should obtain independent legal advice;
- Of course these conditions can be amended as long as both parties agree.
Statements and warranties
- In a nut shell, the vendor is making a statement and assures the buyer what they have said is correct and to the best of their knowledge;
- If this is not the case, the buyer has some recourse. They may be able to terminate the contract for sale and sue the vendor for damages for any loss arising from the breach.
- Under current law, all employed staff employed by the business will be terminated upon completion of the contract for sale. The vendor is required to pay all outstanding liabilities (wages, holiday pay and loadings, sick leave, superannuation and long service leave).
- The purchaser is then required to re-employ all employees at that the date they are terminated from the vendor.
- In these cases, the buyer will request a payment from the vendor for an amount equal to the entitlements to cover this expense.
- Sometimes it might be necessary to include a trial period in the contract for sale. If it is agreed between the buyer and the seller, the contract for sale can be made conditional upon a satisfactory trial run of the business.
- Where agreed, the vendor may provide the buyer with some tuition either before or after the contract has settled. This is for an agreed period of time.
- Special conditions can be added to the contract where required. However you must remember for the contract to be binding, both the seller and the buyer must agree to any changes.
One Business Brokers always recommends the buyer and the seller to obtain independent legal advice on the contract for sale of a business.
Once an agreement has been reached on price and terms of the sale, you will need to organise the transfer of any licences and registrations. Remember, even though the business has been sold without the physical transfer of any applicable licences, they will remain the property of the vendor.