Buying or Selling your business? Here are some of the things you might want to consider first.

Buying or selling a business
can seem like a very simple transaction but this is not the case. There is a
lot that needs to be done or looked at behind the scenes to ensure that no
complications arise after the transaction has taken place.

It is always a good idea to
have your agreements in writing as this helps parties refer to it when there
are confusions or disputes relating to the agreement. This is why as a seller
or buyer you will need to be clear on what business you are buying or selling
as this will determine the shape and form your agreement is going to take.

You could just be buying or
selling shares in a business or acquiring an entire business from a holding
company. The former is not so much complicated and simply involves the transferring
of shares from one holder to another. Acquiring a whole business from a company
is more complicated and involves a lot more steps than the transfer of shares. Your
contract in this instant will need to be properly drafted and will differ
depending on whether you are selling or buying the entire business or only
certain assets and certain liabilities in the business.

There are potential risks when
buying or selling a business like buying a company that is on a brink of
liquidation or that is involved in a civil litigation dispute. As a purchaser
of a business, you will need to perform a due diligence evaluation to ensure
that you do not end up with a company that is worth less than what you thought.

Due diligence can be divided
into different components. When you undertake due diligence, you will need to
cover commercial (operational), legal and financial due diligence. The scope of
your due diligence will differ depending on the business but will generally
include:

  1. a financial analysis of the business and its
    value;
  2. an evaluation of assets, including any
    intellectual property;
  3. assessment of any immediate or future risk to
    the value of the business;
  4. a check for any legal impediment to the
    transaction, such as a shareholder agreement prohibiting the sale or use of
    shares as security under another transaction;
  5. an evaluation of the formal requirements and
    procedures necessary to implement the agreement;
  6. an assessment of whether the business operates
    in a sound and lawful manner, complying with all relevant legislation.

Here are some of the other
things you and your attorney will need to bear in mind:

  1. Are there any outstanding loans in the name of
    the company? – the contract must indicate whether the purchaser will take
    cession of some or all loan accounts against the business that are in favour of
    a creditor.
  • Does the seller need to be released from any
    sureties? – the owner of the business may have signed as a surety and co-principal
    debtor with the business in favour of a creditor. Releasing someone as a surety
    is at the sole discretion of the creditor and should the creditor refuse to
    waive it, the only other way will be to discharge of the debt giving rise to
    the surety and terminate the suretyship agreement.
  • Are there any suspensive conditions? – although
    parties may have entered and concluded a contract, the effect of the agreement
    may be suspended until the occurrence of a certain future event. Both the seller
    and the purchaser will need to determine what conditions need to be met before
    the agreement can be regarded as having been completed.
  • Is the business being sold as a going concern?
    – this means that some or all parts of the business that generate income are
    included in the sale. For example, selling business premises that are used for
    letting and generate an income. When a business is sold as a going concern, the
    parties will need to comply with the provisions of section 34 of the Insolvency
    Act by advertising the sale of that business. In cases where Section 34 is
    applicable, the publishing of sale is important for the protection of the
    purchaser and also any financial institution that finances the purchase of the
    business.
  • If the business is being sold as a going
    concern, the seller does not need to levy VAT on the sale (even if both parties
    are registered for VAT). This is because the collector of revenue has seen the
    charging and the claiming back of VAT as an unnecessary exercise that inconveniences
    all parties.

Depending on the kind of
business you are buying or selling, there will be other factors that you will
need to consider ensuring that your agreement in perfectly tailored for your
scenario and that there is compliance with the law.

If you are buying or selling a
business, contact us for guidance at the outset and we will guide you smoothly
through the process:

031 003 0630 / info@schwenninc.co.za

GUEST AUTHOR BIO

Charmaine Schwenn

Charmaine Schwenn

Attorney

Schwenn Incorporated Attorneys & Conveyancers

Over the last two decades, Charmaine has grown a loyal following of clients. As a former partner at Tate, Nolan and Knight Inc., Charmaine has worked with clients across a diverse spectrum of industries and needs.