Trusted Legal Services for Business Sales

What are common Seller objectives?

Objectives vary considerably, and each transaction is unique. However, Sellers are usually keen to maximise the amount of money they walk away with, and simultaneously reduce the prospects of a claim being made against them after completion of the transaction.

What are common Buyer objectives?

Objectives vary considerably, and each transaction is unique. However, Buyers commonly seek to ensure that they will receive exactly what was promised, and that they have an avenue to make a legal claim if they identify issues with the business after completion of the transaction.

How long do transactions usually take?

Transactions come in all shapes and sizes. Some are completed within weeks of the initial discussions taking place. Others take several months to even get to the stage of signing a contract. The variables that impact time frames include:

the extensiveness of the due diligence process undertaken by the Buyer;
the risk profile of the relevant business;
the number of third party consents required (e.g. landlord, supplier, franchisor and customer consents to the transaction);
the nature of the workforce for the business and the related
employment transfer considerations; and
the risk appetite of the parties.

What size deals do you advise on?

We advise on transactions of all shapes and sizes.

We take pride in ensuring that our clients receive prompt service and the highest quality of work irrespective of whether the deal value is $100,000,000 or $100,000.

What are common traps that people fall into?

There are too many to list. Some of the common ones include:- getting advice too late in the piece (e.g. after a Term Sheet has been signed which locks in the key commercial terms);

overlooking third party aspects (e.g. the need to get consent from a landlord or franchisor);
not being careful with contract wording – the devil is in the detail;
focusing just on what is in the contract and overlooking what is missing;
losing perspective – it is important to keep the big picture in mind, as smaller insignificant details should not get in the way of achieving your more important commercial objectives; and
poor negotiation tactics – usually by either being too forceful or not strong enough during negotiations.

How do you charge?

Trust is one of our core values. We pride ourselves on not causing 'bill shock'. Our usual approach is to provide you with a clear and transparent fee quote to ensure that there are no surprises. You can then make an informed decision about whether you want to proceed or not.

What is an "earn out"?

An earn out involves the seller receiving an amount of money, with the amount determined based on financial performance after completion / settlement. These arrangements are complex and we recommend obtaining legal advice about them.

What happens at Settlement / Completion?

Settlement / Completion is when the parties complete the various completion obligations in the contract and legal ownership of the business or asset is transferred to the Buyer. The complexity and nature of the completion obligations depends on the specific transaction, but can include things such as: payment of the purchase price, transfer of a business name, finalisation of a lease transfer, and release of security interests.

Nowadays, settlements commonly take place remotely by way of email correspondence between solicitors. This is usually our preference as it can enable our clients to save time and money without compromising on the outcome.

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What tax concessions are available in Australia for business owners selling a business?

Business owners selling their business may be entitled to claim the small business CGT concessions. There are four main tax concessions available to business owners, provided they meet specific eligibility criteria. These concessions are designed to help reduce the tax burden when selling shares in a business:

15-Year Exemption: if you have owned the shares for at least 15 years and are either 55 years or older and retiring (or permanently incapacitated), any capital gain may be entirely disregarded (i.e. completely tax free).
50% Active Asset Reduction: under this concessions, you can reduce an eligible capital gain by 50% (in addition to any reduction under the general 50% CGT discount).
Retirement Exemption: a capital gain of up to $500,000 (per individual) may be disregarded up this concession. If an individual is under 55 years of age at the relevant time, the disregarded capital gain must be contributed to a complying superannuation fund or retirement savings account.
Small Business Rollover Relief: this concession allows a capital gain to be deferred for a minimum of two years. This capital gain can be further deferred if you acquire a replacement business asset within a specified timeframe (generally two years).

How does the sale of assets differ from the sale of shares in terms of tax concessions?

Firstly, entity that is selling (assets or shares) may be entitled to the general 50% CGT discount. Companies are not eligible for the general 50% CGT discount. Typically, this means that the general 50% CGT discount is more likely to apply to a sale of shares, rather than a sale of assets.

The small business CGT concessions can apply to both a sale of shares and a sale of assets. However, the tax implications are likely to differ depending on whether the seller is an individual, discretionary trust, unit trust or company. Where the small business CGT concessions are claimed by a company, a further consideration is how the sale proceeds can be paid from the company to the shareholders of the company.

The eligibility criteria for the tax concessions in an asset sale may also differ, as the asset sale involves the disposal of specific assets used in the business, whereas a share sale involves the sale of ownership interests in the company. It is crucial to seek professional advice to understand the specific tax implications and available concessions for your unique situation.

How do I know if my business qualifies for the small business CGT concessions when selling shares?

To qualify for the small business CGT concessions on the sale of shares, the following conditions must be met:

the seller must either be a small business entity (SBE) with an aggregated annual turnover of less than $2 million or pass the $6 million maximum net asset value test (which considers the net value of the CGT assets owned by the entity and its connected entities).
the shares being sold must satisfy the active asset test. This requires that the shares are an ‘active asset’ for at least 50% of the sellers ownership period(capped at 7.5 years). In order for shares to be an active asset, it is necessary to trace through to the underlying assets of the company. This is known as the 80% test. Under the 80% test, at least 80% of the company’s assets (assessed by value) must be qualifying assets.
the entity selling the shares must have a certain stake in the company. If the seller is an individual, the individual must have a small business participation percentage (SBPP) of at least 20% in the company. If the seller is a discretionary trust (or company), a more complex test applies.

Can I combine different tax concessions when selling shares in my business?

Yes, you can combine different tax concessions when selling shares in your business, provided you meet the further eligibility requirements for each concession.

The 15-Year Exemption cannot be combined with other CGT concessions, as it provides a full exemption from capital gains tax.

You may be able to apply the Retirement Exemption, the 50% Active Asset Reduction, and the Small Business Rollover Relief in any order sought appropriate to minimize your tax liability on the capital gains resulting from the sale of shares.

How can I ensure that I maximise the available tax concessions when selling shares in my business?

The small business CGT concessions involve strict eligibility criteria. Failure to meet those criteria can result in a complete loss of the small business CGT concessions (as well as interest and penalties being imposed if the concessions are improperly claimed).

To maximise the tax concessions available when selling shares in your business, it is essential to:

plan the sale well in advance, allowing enough time to review the business's structure, financial position, and ownership interests.
engage professional advisors, such as accountants and tax experts, to help assess your eligibility for the various tax concessions and guide you through the process.
ensure that your business meets the required eligibility criteria, such as being a small business entity, passing the maximum net asset value test, and satisfying the active asset test.
carefully consider the timing of the sale, taking into account factors such as your age, retirement plans, and the duration of share ownership, as these can impact the availability and applicability of certain tax concessions.
keep accurate records of the business's financial history, ownership structure, and asset usage to support the application of the tax concessions when selling shares.
consider whether any actions should be taken prior to a sale.

By planning ahead and seeking professional advice, you can help ensure that you maximise the available tax concessions and minimise your tax liability when selling shares in your business.