Having worked with a number of purchasers and vendors of health practices, we’re familiar with the ins and outs of how these transactions work. Whether you’re involved in or looking to be involved in a dentist, physiotherapy or general practice medical clinic, there are certain things you need to look out for.
Are you buying or selling the shares of the entity or just the business?
If you’re buying the shares, the entire business will pass to the new owner – all of the rights and liabilities of the company will transfer across. If the business is for sale, the liabilities of the business can be paid out by the vendor, meaning it can be less risky for the purchaser. Share sales are often used when a business is reliant on contracts that are difficult to assign (transfer), or where there are a large number of contracts, as not all contracts include ‘change of control’ clauses that relate to the transfer of shares. Share sales are also often used in order to enable the vendor to obtain tax concessions or where part of a business is being sold to someone who is already an owner. Business or asset sales are often used when not all of the assets or liabilities will transfer ownership. (The following considerations in this article mainly relate to sales of businesses, not shares)
Is there a Heads of Agreement?
We don’t recommend entering into a Heads of Agreement unless you’ve had it reviewed by a lawyer. Sometimes people sign up to these without realising that aspects can be binding, and are forced to include the terms in the Contract of Sale. A Heads of Agreement may specify milestones that need to be achieved, such as finance approval, so it is important to look out for key dates.
Do you need a Small Business Disclosure Statement?
In Victoria, if the goodwill, plant, equipment and fittings being sold in a sale of business have a total price of $350,000 or less, the vendor must provide a Small Business Disclosure Statement before the purchaser signs the Contract or pays the deposit.
Do your Due Diligence
Things that we help our clients to look for include:
- Checking that the purchaser and vendor’s details in the Contract are correct (it can be helpful to undertake a company search to check this)
- If you are a purchaser, checking that the vendor owns the property or occupies the property in accordance with a valid lease
- If you are a purchaser, checking if there are personal properties securities interests held over assets of the business or the vendor, and if you are a vendor, helping you to get these released (if necessary)
- Whether there is a restraint on the vendor included in the Contract, and whether it is likely to be valid
- Reviewing the material contracts of the business for any assignment or change of control clauses
- Checking that the assets, if it is a sale of business, are adequately described
- Checking whether any council / government consents are required
What about Employees?
It is important to know what is happening to the employees of the business – whether their employment will be terminated by the vendor or whether their entitlements will carry over. If you are a purchaser, it is important to check for any relevant awards and find out if there have been disputes with employees.
Tax Issues when buying or selling a business
There are tax issues associated with buying or selling a business, such as stamp duty (which can apply depending on the state or territory of the transfer) and GST.
These are some, but not all, of the issues that can arise in sales of shares and/or businesses. It’s important that you obtain legal advice from lawyers with the experience and passion to get things right, which is where we can help.