Legal and tax

When you're considering buying a business, there is a range of important legal and tax questions you will need to answer throughout the due diligence process. It is a good idea to consult a professional adviser to help answer the following questions.

Legal

  • What are the terms and conditions of any applicable lease agreement and your obligations and rights under such agreements?
  • Are there any notices with regard to health, water and sewerage or other government requirements that have been served on the business and require work to be carried out?
  • Do you understand your obligations under the intended business legal structure?
  • Are there any legal proceedings pending against the business or the seller?
  • Have you sought legal and accounting advice on the best way to handle your finances, the purchase and your business structure?

Tax

  • You're buying an asset. At some point in the future you may wish to sell it. Are you aware of the relevant provisions of capital gains tax law?
  • There are special capital gains tax implications if you sell a business within 12 months of purchase. If this is your plan, have you considered these?
  • There may be transfer (stamp) duty implications if you acquire business assets or if there's any internal trading entity restructuring (e.g. family partnership to company). Have you considered these?
  • Are there any GST or other tax implications for your purchase?
  • Have you consulted an accountant on how to value assets for the best tax advantage?

Purchase agreement

  • Does the draft contract identify specifically the assets you're purchasing, the liabilities you're assuming and the precise date and time when you'd take over the business?
  • In drafting your offer, have you included escape clauses covering finance, record inspections, obtaining necessary licences and rights, other transfers, and achievement of minimum trading levels during the trial period?
  • Have you arranged for total control over the recording of cash sales and banking for the trial period?
  • Is the business being sold as a going concern or will the current business be wound up? Legal advice is usually necessary on this.
  • If buying part of a company or entering a partnership, do you know of any limits on one person making a commitment on behalf of the business?
  • Consider purchasing a Real Estate Institute of Queensland (REIQ) contract for business sale together with conditions of sale forms (forms FS004 and FS024). Even if you don't use it, these forms provide very good guidelines for the purchaser.

Price

  • Were there other prospective purchasers who decided not to buy? What were their reasons?
  • Are you relying on the seller's accountant's valuation of the business? An independent valuation of the business may be more appropriate.
  • Are you ready to negotiate? A business is worth no more than the highest price the market will pay.

Also consider...