What to Look Out for When Purchasing a Business?

If you are considering to purchase a business there are many things you need to do from a legal, financial and general business perspective. Getting the right advice from the start is important. The structure of, and issues involved in, the sale are quite different if you are buying the business assets only, compared with the shares in the company that owns the business.

GST ‘Going Concern’ Exemption
Despite the fact that the goods and services tax regime has been with us for nearly a decade, the going concern exemption still causes some confusion amongst parties to a sale of business transaction.

A 'going concern' for the purposes of GST law refers to an enterprise's ability to continue functioning after the date of supply. If the supply of an enterprise is deemed to be the supply of a 'going concern', then the supply of that enterprise is GST exempt.

The purpose of seeking the 'going concern' exemption is so that the purchaser of the 'going concern' enterprise does not have to provide the additional funds up front to cover the GST on the amount payable for the supply of the enterprise.

If GST does apply, the purchaser will generally be required to pay an additional 10% of the purchase price at completion of the transaction to cover the GST. Although the purchaser will be entitled to recover the GST through the input tax credit system, the purchaser will generally not be able to do so until well after completion.

Employees
If the business is being purchased as a going concern and the purchaser is assuming liabilities for employees then a list should be provided – setting out the employees, their job descriptions, salaries, years of service, any disciplinary issues and accrued entitlements like holidays and long service leave.

Stamp Duty on Transfer of Business
Stamp duty is a tax imposed by Australian state and territory governments on the purchase of assets. Each government has different stamp duty legislation, so it is important to understand stamp duty for a sale of business in your relevant state or territory. In most cases, the purchaser pays stamp duty.

In South Australia, stamp duty falls under the Stamp Duties Act 1923 (SA). On 18 June 2015, South Australia abolished stamp duty on all sale of business agreements signed after that date.

If you would like to find out more about your rights and options on transfer of business, Straits Lawyers are here to help. We are now offering online services in both English and Chinese.

Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.