Buying or Selling a BusinessWhat You Need to Know

Why it matters

Buying or selling a business involves far more than agreeing on a purchase price. A transaction can involve assets, contracts, employees, leases, intellectual property, liabilities and ongoing obligations.

Getting the right legal advice early can help you understand exactly what you're buying or selling, identify potential risks before you become committed, negotiate appropriate protections and guide the transaction through to settlement.

What should you check before buying a business?

Before buying a business, it's important to understand exactly what you're acquiring and whether there are legal issues that could affect its value or your ability to operate it.

Depending on the business, important questions may include:

• •What assets are included in the purchase?
• •Who legally owns those assets?
• •Are there debts or liabilities connected with the business?
• •Are important customer or supplier contracts transferable?
• •Are there existing or threatened disputes?
• •Who owns the intellectual property?
• •Can the commercial lease be transferred?
• •Are licences, permits or regulatory approvals required?
• •What employment obligations need to be considered?
• •Are there restrictions affecting how the business can operate?

A commercial lawyer can investigate these issues as part of the legal due diligence process and help identify risks that should be addressed before you proceed.

What does due diligence involve?

Due diligence allows a prospective buyer to investigate the business before becoming fully committed to the purchase.

Legal due diligence may involve reviewing:

• •Business ownership and structure
• •Assets
• •Material contracts
• •Commercial leases
• •Intellectual property
• •Employment arrangements
• •Licences and regulatory requirements
• •Existing legal claims or disputes
• •Other contractual obligations or liabilities

If an issue is identified, your lawyer can help determine how it should be dealt with. This could involve seeking further information, negotiating changes to the agreement, requiring an issue to be resolved before settlement or obtaining additional contractual protection.

Financial and tax due diligence will usually require advice from an accountant or other appropriate adviser.

What should be included in the Sale and Purchase Agreement?

The Sale and Purchase Agreement records the terms on which the business will change hands and is one of the most important documents in the transaction.

Depending on the sale, it may deal with:

• •The purchase price and payment arrangements
• •Assets included and excluded from the sale
• •Conditions that must be satisfied
• •Due diligence
• •Finance
• •Existing contracts
• •Commercial leases
• •Employees
• •Intellectual property
• •Warranties
• •Restraint of trade provisions
• •Settlement arrangements
• •What happens if something goes wrong

A lawyer can review or prepare the agreement, explain the obligations you're taking on and negotiate provisions designed to protect your position.

Ideally, this should happen before you sign the agreement rather than after you have become legally committed.

What happens to existing contracts and leases?

A business may depend on contracts with customers, suppliers, distributors, technology providers and other commercial partners.

Not every contract can automatically be transferred to a new owner. Some may require the other party's consent.

If the business operates from leased premises, the commercial lease may be equally important. Questions can arise around landlord consent, assignment of the lease, remaining lease terms, renewal rights, rent reviews and personal guarantees.

A lawyer can review these arrangements and help establish what needs to happen for important contracts and premises to remain available after the sale.

What happens to employees when a business is sold?

Employees can be an important part of a business transaction, but what happens to them depends on the structure of the sale and the circumstances.

Issues can arise around existing employment agreements, accrued entitlements, offers of employment by the buyer and obligations relating to affected employees.

These matters should ideally be considered before the transaction is completed. Where necessary, a commercial lawyer may work alongside an employment lawyer to address the employment aspects of the sale.

What happens to intellectual property?

For some businesses, intellectual property may be among their most valuable assets.

This can include:

• •Trade marks
• •Business names and branding
• •Copyright
• •Software
• •Designs
• •Domain names
• •Confidential information
• •Proprietary technology or processes

Before buying a business, it is important to establish what intellectual property the business relies on, who owns it and whether the necessary rights will transfer to you.

A lawyer can help identify ownership or transfer issues and ensure that relevant intellectual property is properly dealt with in the transaction documents.

What warranties should buyers and sellers consider?

A buyer may ask the seller to provide warranties about the business and the information supplied during the transaction.

These could relate to assets, contracts, disputes, intellectual property, compliance or other aspects of the business.

For the buyer, warranties can provide important contractual protection. For the seller, giving a warranty can create continuing obligations and potential liability after settlement.

A lawyer can help a buyer determine what protections may be appropriate and help a seller understand and negotiate the warranties they are being asked to give.

What about restraint of trade clauses?

A buyer may want to prevent the seller from immediately establishing or joining a competing business after the sale.

The Sale and Purchase Agreement may therefore contain restraint of trade provisions relating to matters such as competition, geographical areas, customers, employees and the period for which restrictions apply.

Because the appropriate terms and enforceability of restraints depend on the circumstances, both buyers and sellers should understand their effect before agreeing to them.

What if a problem is discovered before settlement?

Discovering a problem doesn't necessarily mean the transaction has to end.

Depending on the agreement and circumstances, your lawyer may be able to help you:

• •Obtain further information
• •Negotiate changes to the agreement
• •Require an issue to be addressed before settlement
• •Seek additional contractual protection
• •Renegotiate particular terms
• •Determine whether a condition gives you a right not to proceed

The options available will depend on the terms of the agreement and the particular problem.

When should you get legal advice?

Ideally, before signing the Sale and Purchase Agreement.

This gives your lawyer an opportunity to review the proposed transaction, identify legal risks, recommend appropriate conditions and negotiate protections before you become committed.

If you've already signed, getting advice promptly can still be important - particularly if the agreement remains conditional or an issue has arisen before settlement.

What type of lawyer do you need?

A commercial or corporate lawyer will commonly assist with buying or selling a business.

However, particular parts of the transaction may require different expertise:

• •Commercial lease → Commercial property lawyer
• •Employees → Employment lawyer
• •Intellectual property → Commercial/IP lawyer
• •Company or shareholder issues → Corporate or commercial lawyer
• •Dispute arising from the transaction → Commercial disputes or litigation lawyer

You don't necessarily need to know which legal speciality you need before seeking help. What's important is finding a lawyer with experience relevant to your particular transaction.

How can Get A Lawyer help?

Buying or selling a business can involve several different areas of law, and finding the right lawyer isn't always as simple as searching for a "business lawyer".

Tell us briefly about the business you're buying or selling. Get A Lawyer can help identify the legal help your transaction requires and connect you with our trusted New Zealand law firms suited to your particular matter and ready to help - free to use and with no obligation to proceed.