Immigrants are likely to buy a business within the first 2 years after they arrived in Australia, but most likely to sell a business after 10 years ( CGU Migrant Small Business Report released on 22nd Jan 2018. The timing to buy or sell a business will is related to the visa requirement, family arrangement, health issue or business profit.
If you are going to buy or sell a business, there several crucial checkpoints for business transactions that you must be aware of.
What is for sale
Every business has its unique elements for sale, make sure that you know what important element will be transferred to you when you got the business:
- the business name;
- any plant and equipment that the business uses;
- any property owned by the business;
- any agreements the business is a party too (including leases, distribution agreement, customer contracts etc.);
- the contact details of the business;
- information relating to clients;
- any shares in the company that operates the business;
- anything else, whether tangible or intangible, that can be of assistance in operating the business.
At the point of negotiating a good term when purchasing a business, you must carefully consider:
- the sale price (why it worth the price?)
- the deposit amount (usually 10% of the sale price, could be less?)
- the settlement period (whether longer settlement period suit you?)
- handover training for the buyer (if you need it, what is the costs?)
- arrangements for existing staff (whether the existing experienced staff is needed?)
Price to be apportioned?
In most of the case, it is necessary to apportion the selling price to plant, equipment or goodwill, because the tax consequences of selling a business will differ depending on how the purchase price is apportioned.
A rightly structured business price proportion will avoid a long term tax obligation for your business.
A restraint is basically an agreement between the seller and purchaser of a business that the seller will not operate a similar business after the sale.
A restraint will generally be geographic and/or time-based. It needs to be specifically addressed in order to have the right protection.
Business training required?
It is very important to impose a training period for the immigrant business buyers because the lack of local business knowledge can cause problems. With training, the seller needs to stay on business for 28 days in order to train the new buyer even after the completion of the business.
Alternatively, the seller could be acted as a paid employee to train the buyer. The term of employment will need to be carefully considered.
Keep existing employee?
Generally, the buyer needs to take both business and employer when buying or selling business.
If the immigrant buyer wants to employ their own family member instead of the existing employee in the seller’s business, there will have to work it out legally.
Business tax planning
Tax consequences are related to the structure of the sale. The tax issues of GST and CGE need to be addressed before signing the contract of sale since the highest tax on CGT could be 46.5% of the capital gain from sale of the business.