Transferring a Business

The fundamental considerations in devising a negotiation strategy for the sale of a business depends on which side of the proposed transaction you are on. Are you the buyer, seller or is it a merge? I have personally been involved in the initially negotiations on the purchase of a business, in preparing a business unit for sale and also in the merging of two businesses together. I have seen successes and also failures.

The considerations for a buyer of a business in the negotiation include the following:

  • What are you buying? Is it the business as an ongoing concern, contracts that the business owns and/ or the assets of the business?
  • What is the business structure? Are you transferring the shares of a company across? Is it currently in a partnership? Or are you just buying part of a company (ie a business unit)?
  • In the early stages it is not uncommon to sign a confidentiality agreement.
  • What guarantees will the seller provide for the business? Will the seller agree to a non-compete clause? Will the seller provide a warranty over of the income of the business? How can you protect yourself from the seller starting up a new business and stealing back the customers that they have a relationship with?
  • What Regulations and Legislation affect the business or the selling of the business? Are there licences and qualifications required to operate in the industry? Is there an authority that has to approve the transfer of the business?
  • Will key staff required to operate the business stay on after the transfer? What are the employee provisions (liabilities) that are being transferred to the new employee (Annual leave, Sick Leave, Long Service Leave)?
  • Will Contracts, both client and suppliers, be transferred over to the new owners? Will there need to be negotiation with suppliers and clients to ensure that contracts are transferred?
  • What are the future liabilities for the business? Are there product warranties that the new owners will have to honour? What are the liabilities in terms of accounts payable, loans and leasing arrangements?
  • Will the buyer’s financial sources (loans or shareholders) support the purchase?
  • What are the tax implications, including GST and CGT, for the transfer of business?

During the Due Diligence process in the consideration of a transfer of a business there will be an outline of the key timings for each of the above processes to happen. The outline will also list the triggers for the sale negotiation process to continue, to terminate or for further negotiation before continuing.

For the seller the considerations will be similar except that the seller will need to negotiate how much information they are willing to share at each point in the process. It is a balance of ensuring that the buyer can perform their due diligence while not sharing the information unless the buyer is serious about the end outcome. For a merger it is a combination of the considerations for the buyer and seller. In a true merger each party will need to complete due diligence on the other party.

  1. A very good article and pertinent issues. You have mentioned about the importance of obedience in Army and its applicability to the Managerial/ Corporate world. Yes the parallels can be very much drawn. Being from the Army background, ( A retired two star General from the Indian Army) I have just one comment to make; the obedience in the Army is always based on the acceptance of lawful command given by the superior officer. During war or operations the obedience has to be instaneous as it is every soldier’s duty to fight the enemy. However this cannot be said of peace-time scenario, where some superior officers may give unlawful orders, let us say to sort out a difficult soldier using a moral code or carry out certain instructions for their personal benefits or whims and fancies . Such an obedience may create problem later on and subordinates in the chain of command must bring out the issue of propriety and probity before carrying out such orders. This is what is called Moral Courage. If the superior still insists on such an order, follow it but do your duty to bring out the pitfalls and resultant consequences. In civil/ corporate world this is equally applicable and blind obedience out of sheer sycophancy may produce disasterous results. Obedience of lawful and just orders must be a built in habit both for the Militart as well as Civil organisations.

    • You bring up some very good points. Especially when it comes to moral courage. I think too often we do not demonstrate moral courage as often as we should. This could be because it may mean a loss of income / job or may reduce the likelihood of promotion.

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