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 pack. 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...