Embarking into the world of business requires careful planning and an understanding of your legal and financial obligations.
There are several ways of entering into business. You can buy an existing business, buy the shareholding in an existing corporate business, buy a franchise or set a business up from scratch.
On the other side of the equation is when you decide to sell a business. It also requires careful planning and consideration to ensure you obtain the maximum return and are not burdened with any unforeseen consequences.
Setting up a business
Starting a business from scratch will require careful consideration and planning.
When setting up a business, you need to:
- Define your unique selling point
- Engage a good lawyer and accountant
- Create a business plan
- Protect your intellectual property including registering web domains, logos and trademarks
- Set up your business structure
- Set up a business bank accounts and financing arrangements
- Arrange business insurance
- Register for taxes
- Develop a marketing and social media plan
- Consider what technology you will use and protect your data
- Ensure you have practices and procedures in place to operate the business.
Buying a Business
When looking to buy a business you need to undertake a full due diligence on the business.
You will need to:
- Review the business and company structure to see if it’s appropriate
- Review the business records
- Consider the financial information
- Check any licenses, permits or statutory obligations the business might need to operate
- Understand employee rights and obligations
- Review the Leases, licenses etc. relating to any premises the business operates from
- Consider and review any contracts or agreements the business has with suppliers, customers and third parties
- Review the asset lists and any encumbrances that may be over them
- Review and consider any warranties or other obligations the business has which may become your responsibility
- Check the stock and the levels required to operate
- Consider the economic environment it operates in and any competitors
- Review the trademarks, patents or other intellectual property of the business.
The above list is a broad indication of what is required and is by no means exhaustive. Each business will require careful consideration of what due diligence will need to be carried out.
Once the due diligence has been carried out you will need to consider the type of contract you will enter and how to finance the purchase. You may decide to purchase the business in a new structure, or you may decide to purchase the shares in the current structure. All of these issues need to be considered from a legal perspective.
Selling a Business
When you consider selling your business, it is very important that prior to entering any contract for sale you must:
- Consider the taxation consequences of the sale
- Consider how you will deal with adjustments for liabilities such as employee entitlements and compliance with statutory disclosure obligations
- Ensure all your business and financial records are up to date
- Determine how you will value the business and how to justify the proposed sale price
- Prepare schedules of debtors and creditors
- Prepare a full asset schedule
- Collate all your lease, ownership or rental documents relating to the premises.
Again, this list is not exhaustive and will need to be reviewed considering nature and type of business being sold.
Heads of Agreement when buying or selling a Business
Often the first step before entering a formal contract will be a Heads of Agreement. This is a proposal of key terms that both the buyer and seller would like the sale contract to include.
A Heads of Agreement is usually a non-binding document. It will include a disclaimer that the proposal is not binding until both parties execute the formal sale of business contract.
The Heads of Agreement also can help to reduce your legal costs. Negotiating the terms in advance makes it easier for your lawyer to write the sale of business contract.
In Queensland, the standard sale of business contract is the ‘Real Estate Institute of Queensland (REIQ) Sale of Business Contract’.
It’s a good idea to use this contract in many situations when buying a business in Queensland so that you know you’ve covered the important terms.
However, some contracts may need to include extra clauses or special conditions into your contract. Other contracts may be applicable to share sale agreements and other more unique contracts.
Your business structure affects your business taxes, liabilities, ownership and profitability.
The four most common business structures are:
- Sole proprietor (owned and run by an individual)
- Partnership (arrangement of people to carry on business in common but not as a separate legal entity)
- Company (body corporate which is a separate legal entity from its shareholders)
- Trust (holding property for the benefit of one or more persons)
When you are planning to carry on business with another person, it is critical to ensure that there is a clear understanding and agreement with your partner or shareholders on how the business will be managed. Therefore, it is important to consider such other legal documents such as shareholders agreements.
If your business has a lease, you will need to ensure that the landlord will agree to assign the lease over.
If the lease is a retail lease, before consent can be given, the Retail Shop Leases Act 1994 (Qld) (the Act) requires that the landlord, assignor (business seller) and assignee (business purchaser) must follow the disclosure requirements.
Both the assignor and assignee must exchange a disclosure statement at least seven days before seeking the landlord’s consent. The landlord must also provide a disclosure statement and a copy of the lease to the assignee at least seven days before consenting to the assignment.
The Act also requires that:
- The assignee and the assignee’s lawyer sign a statement acknowledging that the assignee received legal advice about the lease; and
- The assignee and the assignee’s qualified accountant must sign a similar document to demonstrate that the assignee has received financial advice.
When you buy a business in Queensland, you may need to pay transfer duty on the transfer of business assets.
Business assets can include any of the following:
- A right to use a statutory business licence
- The business name/s
- A debt of a business if the debtor lives in Queensland
- A right under a franchise arrangement
- Intellectual property; and
- Personal property such as equipment and trading stock.
Your contract will state which business assets are being transferred. Your lawyer and accountant will be able to assist you with whether you will have to pay any transfer duty, and if so, how much.
The more preparation you do before setting up, buying or selling a business in Queensland, the better your chance of success.
At FC Lawyers, our team can assist you with:
- Director or partner duties and obligations
- Employer and employee relations
- Debt recovery
- Copyright and trademarks
- Consumer protection and trade practices
We have worked with thousands of clients in their business endeavours in a wide variety of industries and professions throughout Queensland and Australia.
Contact our team today to discuss your legal options when setting up, buying or selling a business in Queensland.