Five key legal matters purchasers should be mindful of when negotiating to buy a business

Before a contract for sale of a business is issued, there are a number of matters that must be negotiated. What these matters are will vary from business to business and industry to industry, according to partner and commercial lawyer, DEAN FRITH.

These are some of the key issues a purchaser consider:

1. What you are buying: It is critical to clarify exactly what is being sold as part of the business is critical. Businesses are made up of a number of components: goodwill, plant and equipment, stock, clients, intellectual property rights, websites, even social media accounts. Therefore, a purchaser should investigate exactly what the purchase includes, and those components should be detailed.
2. How much you are paying: The purchase price – and what this price includes – are key factors. For example, the purchase price of a manufacturing business will usually include the plant and equipment to be sold with the business. Stock may also be part of the purchase price or additional to the price. Issues like this need to be clarified.
3. Lock in the business location: The premises from which the business operates is an important issue. If possible, at the negotiation stage a purchaser should ensure that they are provided with a copy of the existing lease or if there is to be a new lease, there should be discussion of the terms of that new lease.
4. Restrain the vendor: The issue of restraint of the current business owner should be raised at an early stage in the negotiations, to protect the good will that you are purchasing.
5. Don’t rely on pre-contract statements: During negotiations there can often be certain statements or representations made by the seller of the business or their business broker. Commonly, contracts for sale of business will include clauses and warranties that exclude pre-contractual matters which will often mean that the purchaser cannot rely upon them. Where a purchaser has relied upon certain matters in purchasing the business, my advice would be to have those matters clearly documented in the contract.

If you need legal assistance with the purchase or sale of a business, contact our experienced commercial law team. Our expertise also covers commercial leasing, liquor law, franchising and more.