Our Brisbane based merger & acquisition (M&A) lawyers act for both sellers and buyers of business interests in Queensland and across Australia.
We are increasingly finding that vendors of businesses (often for tax reasons) want to sell the shares in the company carrying on the entity (or the units in the unit trust) rather than selling the business assets. Instinctively buyers are right to try and resist this as buying the entity means that the buyer effectively “takes on” the liabilities for earlier business decisions that may result in debt.
There are however a number of protective mechanisms buyers can adopt to seek to mitigate the risks of the unknown liabilities. These include:
- Robust and detailed warranties from the seller
- Warranties personally guaranteed by the directors / shareholders of the seller
- Retention moneys or vendor finance (with a right of set off)
- Detailed due diligence (including examination of material contracts, litigation and insurance claims history)
- Run-off insurance (paid for by the seller)
- Transfer of business assets and wind-up of old entity post settlement (assuming no known liabilities)
There is a myth that if the entity is sold, material contracts don’t need to be assigned. Most material contracts will have a provision in them that deems an assignment on a change in control of the entity and so the assignment provisions in material contracts need to be examined and the mechanisms in them followed. The Sale Agreement needs to specifically allow for this.
For an entity purchase there is really no such thing as a “standard sale contract”. The contract needs to be carefully considered and advice sought to ensure that a buyer especially has as much comfort as possible about potential liabilities.
Our Brisbane Commercial Lawyers can help with appropriately drafted Business / Share / Unit Sale Agreements and due diligence advice.
This is the traditional way of selling a business where the business assets are sold as opposed to the selling of the legal entity itself.
This type of business sale has its own challenges and again our Brisbane Commercial Lawyers are happy to help.
Our free Sale & Purchase of Business Checklist prepared by our Brisbane Commercial Lawyers may help you in you business sale or purchase.