Buying a business by purchasing the shares in a company can often be simpler than buying the assets of the business itself. A key reason for this is that contracts with customers, suppliers, and employees can usually stay in place. Whilst the idea of purchasing all of the shares in a private company may appear reasonably simple once you've agreed on a purchase price, as a buyer there are several important documents and steps required to ensure you obtain proper legal title to the shares and, indirectly, the business. Share sale agreement The longest and most detailed document you will need when purchasing a company's shares is a share sale agreement. It's very important that this document is given the attention it deserves. A properly drafted share sale agreement will, among other things, set out the following material terms: the number of shares you will purchase; the purchase price for the shares; whether you will pay for the shares in a lump sum or by instalments; any conditions that need to be satisfied before the sale can complete, for example, the landlord's consent; the obligations on completion required to transfer legal ownership of the shares; any warranties to be provided by the seller regarding the shares, business, and company; any non-compete provisions preventing the seller from operating a similar business after completion; and confidentiality and dispute resolution provisions. Negotiation Usually, the seller's lawyer will draft the share sale agreement, and your lawyer will review it. During negotiations, your lawyer's role is to strike the right balance between the seller's position and your position (as the buyer). More often than not, the seller's lawyer will draft the share sale agreement to be very favourable to the seller. Therefore, you should prepare yourself for several rounds of negotiations, which can take anywhere from a few weeks to a few months. A skilled lawyer will guide you through this process and explain the critical legal points. The most heavily negotiated points often relate to what will happen if there is a breach or disagreement in the future. For example, limits on the seller's liability where one of the seller's warranties (otherwise known as promises) is untrue, and the amount of time you have to bring a claim, are areas of particular focus for the buyer's lawyer. There are standard warranties included in most share sale agreements. However, the most important will be those specific to the business in question including, for example, the seller stating that it is not aware of any reason a customer of the business might seek to terminate a supply contract. Due diligence Buying a business through the purchase of shares in a company results in the buyer taking ownership of its past trading risks. This can include debts to the Australian Taxation Office and other creditors, or work done for customers. The first step to protect yourself from any such risks is to complete a thorough due diligence on the company. This can involve both legal and financial due diligence. Your lawyer can assist by conducting searches of the company and reviewing key contracts. For example, you should ensure that the contracts adequately lock in key clients. Your accountant or financial adviser can review the business's financial records to provide you with details concerning: the value of the business; and risks relating to taxation, payroll, and superannuation. Due diligence can occur before or after you have signed the share sale agreement. If after, the agreement should include a condition precedent which allows you to walk away from the purchase if you discover anything unsatisfactory. You can also address any risks that you uncover by including additional warranties. Completion obligations The share sale agreement will set out various completion obligations. These are obligations that you and the seller must comply with and include documents that the seller must hand over at completion. Many of these will relate to assurances about the seller's ability to sell the shares and the company's approval of the sale. Also, there must be approval of the change in control relating to the shareholders and directors. Generally, the following documents will be required: Directors' resolution – a written resolution signed by the directors approving the transfer of the shares, cancellation or issue of share certificates, and any director resignations or appointments. Shareholders' resolution – a written resolution of the shareholders approving the transfer of the shares and accepting the waiver of any pre-emptive rights. Waiver of pre-emptive rights – the shareholders will sign this waiver to confirm that they are not enacting their rights to purchase the shares. Share Transfer Form – a form which sets out the transfer of the shares from the seller to you (as buyer), and the purchase price paid for the shares. Share Certificate – the seller's share certificate will be cancelled, and a new share certificate issued to you. Appointment/removal of directors – the current directors will need to provide signed notices of resignation, and the new directors will need to sign letters of consent to act. Shareholders' rights If the company has a shareholders' agreement and a constitution, you should review these documents to ensure that the sale complies with all relevant requirements. If a shareholders' agreement exists, it will usually provide shareholders of the company with 'pre-emptive rights' to purchase the shares of a selling shareholder. This means that current shareholders have the first right to buy shares being sold by the seller. If they have this right, then all of the continuing shareholders will need to sign a waiver of their pre-emptive rights if the shares are being sold to a third party. Notifying ASIC Once a share sale transaction has completed, the company must notify ASIC within 28 days of the changes to shareholders, directors, and any address changes. You can do this by completing a Form 484 available on the ASIC website. For personalised advice on buying a business via a share purchase, contact Hardies Lawyers today. Explore our blog for more insights into business succession planning and stay informed about the latest strategies to future-proof your business. Disclaimer : This article is for educational purposes only and does not constitute legal advice. You should seek legal or other professional advice before acting or relying on any of the content.

The reasons a business owner might decide to sell their business are many and varied. Sometimes the decision is driven by an expression of interest or the ripeness of the market, while other times the sale may be forced on a business owner due to circumstances outside their control, such as a dispute between business partners. To get the most value for your business, prior to having lawyers draw up any contracts, it's important to conduct due diligence on your business to ensure it's ready for sale. Here are our top 6 tips for getting your business 'sale ready'. Review Reviewing what you currently have in place, and by extension what you can actually sell, is critical. This will often form part of a buyer's due diligence. Prior to selling your business, it's important to consider: what the key contracts of the business are, and whether they are in writing; whether leasing arrangements exist over any of the business assets; whether your employment contracts are in writing, and whether they contain provisions that protect your intellectual property; whether there are any instances of current or threatened legal action; how current your licences and any relevant permits are; whether all statutory employee entitlements are accurately reflected in your books; what intellectual property is owned by the business, and whether it's registered or unregistered; and whether your key contracts are assignable, and in turn what is required to effect the assignment of those contracts. PPSR Creditors often register security interests on the Personal Property Securities Register ( PPSR ) without advising you or having any requirement to serve you with a financing statement. This can occur where you have waived compliance with this requirement. This can cause registrations to be made against your business which are no longer current or may be incorrect. Therefore, it's important to conduct a PPSR search on your business and review which registrations are either no longer current or are incorrect. You should also consider issuing amendment demands for the effective discharge of any registrations that should no longer be registered on the PPSR or should not have been registered in the first place. If your financier has a security interest over all your business assets, you should consider what is required to remove that security interest. Business premises Do you currently own your business premises or occupy them under a lease or licence? If your premises are leased or licensed, consent from the landlord will generally be required for an assignment of the lease or licence. This can take time and should be factored into the sale process. If you are not transferring the right to occupy the premises as part of the business sale, you may need to consider what 'make good' obligations you need to take care of before you vacate the premises. If so, what is the likely cost of complying with these obligations? Assets You should identify which assets are used in the conduct of the business and those that are not. The condition and value of the assets being sold is important. You should consider whether these assets will be sold unencumbered and, if so, what it will cost to remove the encumbrances. You will also need to consider how you will treat any partly completed work ie, work-in-progress. Will you finish this work, or will it be taken over by the buyer? Similarly, how will you deal with any deposits that you've already received for partly completed work? Employees One of the most important things to consider when selling a business is whether the sale will involve the transfer of existing employees. If so, you'll need to provide the buyer with a schedule of their names, positions, and accrued employee entitlements. Employee entitlements prior to the completion of the sale will also be your responsibility. There may be an adjustment for any accrued entitlements in favour of the buyer at completion of the sale. You should ensure that any non-salary benefits given to employees are documented. Buyers are entitled to know what each transferring employee expects to receive as part of their remuneration package. You should also identify any 'key employees' whose employment by the buyer is likely to be a condition precedent to the sale. Ask yourself whether you’re likely to be vulnerable to a 'key employee' deciding whether or not they will transfer their employment to the buyer. If so, the situation with that employee will need to be handled delicately. Key advisers Having key advisers in your corner is crucial. Consult your lawyer and accountant on whether the sale of your business as a 'going concern' for GST purposes is the most effective way to proceed, or whether the sale should be effected another way, for example, by the sale of shares in your company. Remember to consider any tax implications that might arise from the sale of your business and have a good understanding of how to determine a purchase price that fully reflects the value of what you are selling. Finally, before entering into negotiations with a prospective buyer, you should ask them to sign a confidentiality agreement (otherwise known as a non-disclosure agreement or 'NDA') to ensure they don't use your business information other than for considering whether to enter into the sale transaction. For personalised advice on selling your business, contact Hardies Lawyers today. Explore our blog for more insights into business succession planning and stay informed about the latest strategies to future-proof your business. Disclaimer : This article is for educational purposes only and does not constitute legal advice. You should seek legal or other professional advice before acting or relying on any of the content.