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WHAT DO I NEED WHEN BUYING AND SELLING A BUSINESS IN SA?

Buying or selling a business in SA is a very different process to buying and purchasing property. Your conveyancer can help minimise your risk by making sure you have taken into consideration all the necessary factors and steps that will be required for the transaction.

The following are some of the items that you will need to consider:

Due DiligenceIt is important to seek advice at the earliest opportunity in regards to the most appropriate ownership structure (sole trader, company, trust or partnership) so that tax effective strategies can be put in place. Your accountant and/or legal adviser will be able to assist with this aspect of your purchase. This is vital even if you believe you are fully informed about the business as they will see things from a different perspective.

To conduct a due diligence assessment of a business you will need to carefully review and consider the following:

  • income statements, balance sheets and profit and loss records for the last 3 years
  • tax returns including business activity statements
  • records of accounts receivable and payable
  • minutes of director’s or management meetings
  • business paper files (if available)
  • the seller’s claims about their business (why are they selling and what is their reputation like)
  • level of stock required and how this will affect cash flow
  • details about plant, equipment, fixtures, vehicles
  • existing contracts with clients/staff/suppliers and privacy details
  • partnership agreements
  • guarantees and indemnities and warranties
  • lease requirements
  • franchise setup and ongoing costs (if applicable

Form 2 Vendor’s Statement – The Land and Business (Sale and Conveyancing) Act 1994 provides that a Vendor’s Statement (or Form 2) must be given to a purchaser if the purchase price of the business is under $300,000.00.  This does not include GST, the price of land or any stock that is included in the sale. The Form 2 will provide the following information:

      • The purchaser’s cooling off rights;
      • The financials for the business over the last 3 years; and
      • Land or leased premises associated with the business

Business Sale Contract – this will detail the following items:

      • Timeframe for due diligence;
      • Warranties;
      • Director’s guarantees;
      • GST and legal costs;
      • New lease or Assignment of Lease;
      • Transfer of employees and how any entitlements are to be they dealt with;
      • Assets to transfer including website, email addresses, phone and fax numbers;
      • Valuation of stock in trade and what stock is included;
      • Licence or franchise agreements associated with the business;
      • Restraint of Trade;
      • Business names;
      • Training or Vendor assistance;
      • How the debts and receivables of the business are dealt with

Once the Contract has been signed the focus will then be towards settlement and liaising with all other parties involved in the sale including your financiers.  This usually includes the transfer of any other contracts that the business requires to function and the perusal of either the existing lease and deed of assignment or a new lease. Any outgoings associated with the business and/or the lease will be adjusted. Employee entitlements for long service and annual leave will also be required to taken into consideration.

As part of the State Budget 2015-16 stamp duty will be abolished on business transfer instruments executed on or after 18 June 2015.    

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