You Must Talk to an Auckland Lawyer When Buying a Business
Buying a business is one of the biggest financial decisions people will ever make. Arguably, it is the most risky, since many people have to use their home as collateral. It is essential then that people get advice from an Auckland lawyer when buying a business. Here we look at some of the issues involved.
How to Buy a Business
Assuming that you have found a business that interests you for whatever reason, you need to talk to Auckland lawyer when buying a business to carry out due diligence. This covers two broad aspects.
The first if the financial due diligence, where you ask an accountant to go over the profit and loss accounts, and the balance sheet. They will look for discrepancies in the cashflow, accounts, and major changes in the balance sheet.
The accountant will also look at margins, forecasts, and verify if the reported profit is fair and accurate. Business owners often stack or hide expense from the accounts for a variety of reasons.
The second is legal due diligence. This is broader than the financial issues. It includes reviewing supplier and customer contracts, property leases, tax liabilities, environmental compliance where necessary, intellectual property such as trademarks, any pending lawsuits, and more.
Often, a law firm will either have an accountant on staff who can carry out the financial due diligence, or they will have an accounting firm that they recommend doing the task.
Post Due Diligence
Assuming that the desired company passes the due diligence, the next step is to prepare the contract for the purchase.
Generally, business purchases use the standard Sale and Purchase Agreement produced by Law Association, (the former Auckland District Law Society). Many people will have seen this when buying a property.
The advantage of using this is that all lawyers are accustomed to the details so there are no hidden traps in it. However, the agreement will have amendments such as details of assets, warranties from the seller, finance conditions, payment terms, and restraint of trade protections.
Once everything is agreed, and all the components are in place, the lawyer will perform the actual settlement or transfer of ownership. This involves transferring the money to the vendor.
Ownership Structure
Financing will be a big issue. Sometimes there is vendor finance whereby the new owner pays the seller over time. Other times, the buyer may need to raise a mortgage on their home or look for other investors. All of this needs to be reviewed and documented.
Your lawyer will also be able to advice what ownership structure would best suit you. This could be you personally owning it, using a partnership, or a Limited Liability Company (LLC). Each has advantages and disadvantages in terms of tax, reporting, compliance, risks, and more.
It is best to get legal advice at an early stage since changing can be expensive later down the track.
Post Purchase
Once the purchase ahs been completed with the seller, the lawyer has more tasks to perform.
They have to register the new owner with the Companies Office. If there are any leases for premises, vehicles, or plant, these need to be changed to show the new owner.
For employees, new Employment Agreements have to be issued, and holiday entitlements need to be addressed.
If there were any conditions as part of the sale such as vendor finance or training of the new owners, these must be monitored to ensure compliance.
Conclusion
Buying a business is potentially a high cost, with your home at risk. However, with expert due diligence, your lawyer will be able to reduce many of the risks by determining that the business is fairly valued and without encumbrances.
Therefore, it is vital that you see an Auckland lawyer when buying a business. McVeagh Fleming has three offices in the region, with lawyers trained in all aspects for buying a business. Be sure to consult them before you commit to any business purchase
