Thursday 4th of June 2015
Start-ups are risk-filled endeavours that can affect the founder financially and professionally.
...It keeps many ambitious individuals away from entr...
Start-ups are risk-filled endeavours that can affect the founder financially and professionally. It keeps many ambitious individuals away from entrepreneurship. However, buying a business reduces the risk factors and ensures instant brand recognition and income. It requires funding to purchase the venture and get trained to manage its operations with the help of the existing workforce and policies.
Naturally, it is considered an easier way to entrepreneurship and has captured the imagination of passionate individuals. However, they need to meet the legal obligations associated with the buying process. So, here are the legal factors to consider when buying a business for sale in New Zealand. These tips will help you navigate the process without getting entangled in litigations or a bad deal.
The first step is to check why the business is being sold. If you are convinced that the seller is not making a distressed sale, you can start the basic evaluation process. It includes understanding the business size, type, structure, suppliers, stakeholders, target audience and competitors. Check the asking price and determine if it fits into your budget.
If you are looking at franchise opportunities, you need to know that you will have to pay royalties to the seller besides the franchise fees. Also, you will have to make regular payments for marketing by the franchisor. So, calculate all the costs before considering a franchise, which comes with elaborate conditions that must be met by the franchisee.
Due diligence is the most significant aspect of buying a business. It is vital to hire a lawyer and an accountant for this purpose. You need to assess the financial health of the business for sale New Zealand, which involves analysing the financial statements, assets, liabilities, intellectual property, goodwill, etc.
It is essential to check if the business has any pending litigations or disputes that can affect its operations and finances. Also, review the terms and conditions of legal contracts signed with employees, suppliers, clients and partners. Check all the legal documents like lease agreements and other important documents to identify any red flags. The accountant will help in business valuation and check whether it is worth the asking price or not.
The seller prepares the purchase contract with the help of the lawyer. They will ensure that the terms favour the outgoing owner. The buyer needs to negotiate these terms and the asking price because it can be reduced. They must enquire about the total cost of buying and running the existing business for sale.
The date of the purchase must be decided, and the period of training and handover should be discussed with the seller. The requirements for the transfer of legal documents and other papers must be understood to ensure compliance with legal obligations. Ensure that your lawyer accompanies you for the meetings and helps negotiate the terms to avoid accepting any unfavourable conditions.
Buyers need to ask their lawyers to review the terms and conditions of the purchase agreement carefully. The clauses must be understood to avoid misunderstandings and disputes. You can get restraints added to the agreement, which will restrict the vendor from setting up a competitive business. Also, ensure that the payment process is clearly mentioned in the contract if you are opting for deferred payments.
The lawyer can provide assistance with vendor warranties and delivery of documents. They will help with the funding documentation. The accountant can also provide support in finding low-interest rate business loans for the purchase of businesses for sale in New Zealand. Your lawyer will make sure the encumbrances are removed on settlement to have a clear title handed over.
The buyer must get the purchased business registered with the Companies Office and get the names of the shareholders changed if required. The sale of going concern incurs GST. It can be 0% if both the buyer and seller are registered for GST. The rate of GST must be mentioned in the contract.
If you are buying a franchise, you must know that the franchise agreement comes with a seven-day cooling-off period. So, if you feel you have made a mistake by acquiring the franchise, you can terminate the agreement and get the payment back. It is vital to follow the rules of the Franchising Code of Practice and Code of Ethics while completing these formalities.
When buying a business for sale in New Zealand, the buyer must decide if they wish to keep the staff or hire a new team. If the sale and purchase agreement does not include employee contracts, the buyer can sign new contracts with the people they wish to retain.
The decision must be conveyed to the seller before the agreement is signed to settle the payments of the employees who need to be relieved from their duties. The buyer has to undertake business restructuring if there are more than 19 employees in the company.
New entrepreneurs must check the location and speak to the landlord about the lease terms and clauses. They should check the permitted use of the premises and zoning laws to ensure they do not make any violations in the future. The buyer and the commercial property owner can negotiate the terms of the lease to include the clause of the first option to purchase the property.
They must also get the first right to refusal if the landlord intends to sell the property in future. It will help to ensure a seamless tenancy and take into account the accurate rent and outgoings while calculating the working capital. The lawyer can help in making the new lease contract.
Wrapping Up
If you plan to purchase a business for sale in New Zealand, you must adhere to the legal obligations. It keeps insulated from incurring penalties and following the rules of the land. It aids in making the right decision and averting deals that can prove financially draining.
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