Do not sign a contract without first having it checked by your lawyer who will ensure the contract reflects your expectations and all legal requirements are met.
The contract should include:
- A full description of the business;
- The business name and whether or not it’s registered;
- Allocation of the sale price — how the price was determined between goodwill, stock, plant and equipment and possibly restraint of trade requirements;
- Provisions for the purchase of all the stock or the stock up to an agreed value. It is common practice to employ a professional valuer to fix a value;
- Warranties regarding the sales performance of the business; and
- A provision that the sale is subject to you obtaining the necessary finance and assignment of any applicable lease.
It may be necessary to have special conditions inserted into the contract to assist your new business during the transition between owners. These can include:
- A restraint on the seller to prevent them from opening a similar
- Business in competition after finalisation of the sale to you
- A requirement for the seller to work in the business for a set period of time after settlement, to introduce you to suppliers and customers and assist in the day to day running of the business
- The method of adjusting the pay entitlements of continuing employees
If you are buying an existing business you should receive the following documents from the seller:
- A form 19 Estate Agents Act 1990 (Vic) giving details of the financial position of the business
- A section 51 statement indicating whether or not the agent is going to help you find finance;
- A contract
- A transfer of the registered business name (if applicable)
- A transfer of any permits or licences (if applicable)
- A transfer of the lease of the premises and/or any equipment
Do not sign any documentation without first consulting your lawyer and only pay money to a lawyer or licensed real estate agent.