Tab 5 of 5 · Contract
The business sale contract, and where cooling-off fits
A business purchase becomes binding in stages: Business Queensland describes a non-binding letter of intent, then a legally binding letter of offer that the seller must accept, then the purchase contract. For cooling-off, the only state source this guide holds is a South Australian Law Handbook page last revised on 6 December 2013, too old to restate here, so check the current law in your state or territory.
General information, not legal advice on any contract or purchase. The official places to check are business.gov.au, your state or territory’s consumer affairs or fair trading agency, and in South Australia the Legal Services Commission.
From first letter to settlement
Business Queensland sets the stages out in order. Its steps are guidance written for Queensland.
Letter of intent
It outlines the proposed terms and the timing of the sale, and can include a lock-out or exclusivity period. Business Queensland says it should be non-binding, include basic terms, say whether the offer depends on a trial, finance or a satisfactory lease, and come before a final contract.
The price
A price from the seller or their broker is “regarded as a starting point for negotiations”.
The money
If a loan is needed, Business Queensland suggests talking to the lender as early as possible about documents and any extra due diligence it wants.
Letter of offer
A “legally binding document” with the final price, terms and conditions of sale, which the seller must accept for the sale to go ahead. Where a broker offers a template, Business Queensland’s advice is still to complete it closely with your own solicitors.
Purchase contract
Drafted once the offer is accepted, with conditions for both sides and documents to be provided by a set date.
Settlement
An agreed settlement date, when the buyer becomes the legal owner, and any arrangement for the previous owner to stay on for a time to help with the handover.
What the contract sets out
business.gov.au calls a business sale agreement “a legally binding contract between you and the buyer”, writing to the seller; the terms it lists run from the price and the method of payment to restraint clauses that stop the seller competing directly with the business.
Business Queensland adds that a draft contract shows whether assets and liabilities are bought at book value, market value or replacement value, the date and time of takeover, and any trial period. A selection of its questions for the draft:
- Will you be purchasing the accounts receivable?
- Is the seller prepared to sign an agreement not to compete with you?
- Will the seller provide training after the purchase, and for how long?
Two more things can belong in the paper. A due diligence period, which Business Queensland says lets the agreement be ended if an issue that could seriously affect the business’s success is uncovered, generally runs 5 to 10 business days after signing. And if the sale is meant to be GST-free as a going concern, the written agreement the ATO requires is set out on the GST tab.
Cooling-off, and the one state source held here
This guide holds a business-sale source for no state or territory but South Australia, and restates no state’s rule. business.gov.au tells sellers to check whether their state or territory has laws about what information a buyer must be given, and a buyer can ask the same question from the other side before the letter of offer.
Law Handbook page last revised 6 December 2013
The Legal Services Commission’s Law Handbook describes a cooling-off right for buyers of some businesses under the Land and Business (Sale and Conveyancing) Act 1994 (SA), and a document the seller must give the buyer. Because that page was last revised in 2013, this guide does not repeat its periods, amounts or exceptions: check the Act as it now stands before relying on any of it.
The same page points South Australians to the Legal Services Commission for free and confidential legal advice; its contact details are on the Law Handbook page.
What the seller says has to be true
The contract closes what the checks and the staff arrangements have shaped, in the order on the home page.
business.gov.au reminds sellers that information about the business must be accurate and true, and that misleading or deceptive behaviour is not allowed. It suggests a lawyer draw up the contract so that it follows any state or territory conditions, contains no false statements, and covers matters such as what happens if the buyer doesn’t proceed and who pays employee entitlements. Its advice to understand every term before signing applies on both sides of the table.