One way to buy a business is to pay the seller for the assets of the business, which includes its equipment and stock, its intellectual property, which includes its logo, trademarks and slogans, and its goodwill, which means the loyalty its customers. Buyers of businesses often seek to avoid taking on the liabilities of the seller, meaning any debts or responsibilities to make payments, including any liabilities that the parties don’t know about yet, such as someone suing the business in future years for something that happened before the sale.
Different ways to structure a business purchase
It is possible to structure a business sale in more than one way. If the business is owned by a company, an alternative way to buy and sell the business, instead of buying its assets, is for the seller to transfer to the buyer all of the shares in the company, and resign as director, meaning the buyer will be left in control of the entity.
Either method has its advantages and disadvantages. A major disadvantage of the second method is that the company usually comes to the buyer together with all of its existing liabilities. An advantage is that all of its contracts will also be intact, and the new owner of the business won’t have to do things like re-hire employees, or re-negotiate leases (although many leases have a “change of control clause” which requires the tenant to notify the landlord if the people controlling it change).
Whatever method is used to buy a business, it is always important for the buyer to conduct due diligence inquiries and learn everything it can about the business it is acquiring. Furthermore, the seller and its principals can be asked to provide guarantees and indemnities in case something goes wrong.
If you need advice about buying a business in Perth or Western Australia, please contact Irving Law business and contract lawyers on (08) 6460-5460 or if calling from outside Australia +618-6460-5460. Please also see our Resources page for links to more articles and information that we have published on business related topics.