Purchasing a Business |What should you consider?

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Purchasing a business can be a daunting exercise. The financial and legal expects of the transaction has to be thoroughly dealt with. Once you have done your initial due diligence and decided to purchase the business, make sure to consult with your lawyer before you sign the agreement for Sale and Purchase of a Business. Many have burnt their fingers by entering into an agreement without prior consultation with their lawyers.

Your lawyer would be able to advise you regarding the legal aspects of your agreement. However, your initial due diligence should cover the following :

  1. your understanding of the business
  2. your financial ability
  3. the risks involved
  4. the suitability of the location of the business premises
  5. is the business currently doing well
  6. are there any licensing regulation
  7. are you able to give it an undivided attention or have trusted people managing the business

Your lawyer will be able to discuss with you the legal implications and advise you accordingly before you sign the agreement for Sale and Purchase. Your lawyer will incorporate proper clauses into the agreement to safeguard your contractual rights and carryout due diligence exercise to ensure that your risk is mitigated to the lowest level possible.

As part of the due diligence process, your lawyer will request amongst others :

  1. profit and loss account
  2. list/data base of existing clientele’s
  3. ensure that the employment agreement with the existing staff is terminated (if need to) and all outstanding PAYE, salaries have been paid to date.
  4. all debts have been paid to date
  5. all licenses are still in place and is transferable to you
  6. lease of the premise is assignable to you.
  7. duration of lease is long enough for you to carry out the business in an uninterrupted manner
  8. there are no legal suits pending against the company
  9. restriction of trade clause included to ensure that the vendor does not set up a similar business in a close proximity resulting in competition with you.
  10. online and social media presence.

At Auckland law firm Quay Law, we are geared towards helping our clients achieve the highest results and ensuring that their legal risk is minimized to the lowest possible. For more information or to chat to a lawyer, please contact Ian Mellett.