Buying or Selling a Business in NSW

A business sale moves many things at once.

Goodwill, equipment, stock, the lease, the staff and the name.

Each needs its own clause in the contract.

We act for buyers and sellers from the first offer to completion.

What the contract for sale of business should cover

The parties, the business name and the price.
The assets included: goodwill, plant and equipment, intellectual property, and any licences that can be transferred.
How stock is counted and valued on the completion date.
The deposit, and who holds it until completion.
Conditions, such as finance, the landlord's consent to the lease, and the transfer of licences.
The seller's promises about the business, such as its accounts and that there are no hidden debts.
A restraint on the seller starting a competing business nearby.
A training or handover period by the seller.
How employees are dealt with.
Whether the sale is GST-free as a going concern.

What a buyer should check

The financial accounts and tax returns for recent years.
The lease: the term left, options, rent, outgoings, and whether it can be assigned.
Equipment: whether it is owned outright or subject to finance or security.
Searches of the Personal Property Securities Register for security interests over the assets.
Key contracts with suppliers and customers, and whether they can be transferred.
Licences and permits needed to run the business.
Staff records, wages and accrued leave.

Assigning the lease

If the business trades from leased premises, the buyer usually takes over the lease by assignment.

The landlord's consent is usually required.

For a retail shop, the Retail Leases Act 1994 (NSW) sets out the process for seeking consent and the grounds on which a landlord may refuse.

The contract should make the sale conditional on the landlord's consent.

Staff and their entitlements

When a business is sold, the buyer may offer to employ the seller's staff.

The buyer must recognise some entitlements of transferring employees and may choose whether to recognise others.

Where the buyer does not recognise an entitlement, the seller is responsible for paying it out.

The contract should state which employees transfer and how accrued leave is dealt with on the price.

Awards and enterprise agreements may add further rules.

GST and transfer duty

The sale of a business can be GST-free as the supply of a going concern if:

the sale is made for payment,
the buyer is registered or required to be registered for GST,
the seller supplies everything necessary for the business to continue operating,
the seller carries on the business until the day of sale, and
the buyer and seller agree in writing that the sale is of a going concern.

In NSW, transfer duty on business assets such as goodwill, intellectual property and statutory licences was abolished on 1 July 2016.

Duty is still payable where the sale includes land or an interest in land, such as the transfer of a lease, and on fixtures.

Goods are dutiable only when they are transferred under the same agreement as other dutiable property, such as land or a lease.

Each sale should be assessed on its own facts.

Where buyers and sellers get caught

Paying before the landlord consents.

If the landlord does not consent to the assignment, the buyer may have a business with no premises. Make the sale conditional on consent.

Missing the written going concern clause.

The GST-free treatment requires the parties to agree in writing that the sale is of a going concern.

Assuming no duty is payable.

Goodwill is not dutiable in NSW, but a lease, land, fixtures and goods sold with them can be.

Buying assets subject to finance.

Search the Personal Property Securities Register so you know what is owned and what is owed.

Overlooking staff entitlements.

Agree in the contract who bears accrued leave, and adjust the price to match.

A restraint that is too wide.

In NSW a restraint is valid only to the extent it is not against public policy. A restraint wider than needed may not be enforced in full.

Common questions

Is transfer duty payable when I buy a business in NSW?

Not on goodwill, intellectual property or statutory licences. Duty may be payable on any land, a lease or fixtures, and on goods sold with them.

Is the sale of a business GST-free?

It can be, as the supply of a going concern, if every requirement is met, including a written agreement between buyer and seller.

Do I have to keep the seller's employees?

No. The buyer may offer employment to some or all of them. The contract should say who transfers and who pays their entitlements.

Can the seller open a competing business next door?

A restraint clause in the contract can limit this. It must be reasonable to be enforced in full.