Key Takeaways
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Many Queensland asset sales use a standard business sale contract with special conditions for the transaction. The form and terms depend on the deal.
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Set out the purchase price, deposit, stock treatment and settlement adjustments in writing rather than assuming them.
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Special conditions commonly cover finance, due diligence, lease assignment, licence transfers, restraint of trade and handover training.
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Warranties, employee entitlements and GST treatment need advice before signing, because they are difficult to fix afterwards.
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Settlement timing depends on finance, due diligence and third-party consents, so the contract needs workable dates and extension provisions.
A business sale contract sets out what changes hands, for how much and on what conditions. Queensland business sales are documented in a written contract, often based on a standard business sale form with conditions tailored to the transaction. A solicitor should check the actual form and any amendments before signing.
Buyers reviewing current business listings and sellers preparing to list both benefit from understanding the contract’s parts before an offer is made.
Standard Business Sale Contract
A standard business sale form may be used for an asset sale, but the version chosen and the special conditions matter. The parties’ solicitors should identify what the document already covers and what must be added for the particular business.
A standard form typically covers the parties, the assets being sold, the price and deposit, stock, the premises lease, employees, seller warranties and settlement. In an asset sale, the buyer generally takes the goodwill, plant and equipment, stock and usually the trading name, rather than the seller’s company and its liabilities.
Special conditions are usually attached to adapt the form to the business, and much of the negotiation happens there.
Asset Sale Versus Share Sale
Where the buyer purchases the shares in the seller’s company, a separate share sale agreement is needed. The company’s existing liabilities, contracts and tax history stay with the entity the buyer now owns, so share sales usually involve more extensive due diligence. Ask your solicitor and accountant which structure suits the transaction.
Price, Deposit and Stock
The purchase price is often expressed as an amount for goodwill plus plant and equipment, with stock dealt with separately. The contract should allocate the price between these components, because the allocation can affect both parties’ tax positions.
The deposit amount, who holds it and when it is released are negotiated and should be stated in the contract, including what happens to the deposit if a condition is not satisfied.
Where stock is sold at valuation, the buyer pays for saleable stock counted at cost on or just before settlement. Agree the stocktake method, what counts as saleable and any cap on the stock figure in advance.
Common Special Conditions
Special conditions that commonly appear in Queensland business sales include:
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Finance, where the buyer’s obligation depends on loan approval by a set date.
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Due diligence, where the buyer has an agreed period to review the books, records and other information before the contract becomes unconditional.
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Lease assignment, where settlement depends on the landlord consenting to assign the lease or grant a new one. The condition should state who pays the landlord’s costs and how settlement is extended if consent is delayed.
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Licence and franchisor consents, where regulated licences must be transferred or newly issued, or a franchisor must approve the buyer.
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Trial period, where the buyer observes trading for an agreed period to test the turnover presented.
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Restraint of trade, where the seller agrees not to compete or solicit customers, staff or suppliers within a defined area and period. Have your solicitor assess its scope and enforceability.
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Training and handover, where the seller assists after settlement to introduce staff, suppliers and systems. Record who provides it, when and for how long.
The terms of each condition depend on the deal. Sellers who address lease and licence requirements before listing can reduce the risk of delay from the consents that most often affect settlement.
Warranties, Staff and GST
These clauses need particular care before signing:
Seller Warranties
A standard contract may include warranties about the seller’s ownership of the business and assets, the condition of plant and equipment and the seller’s solvency. Buyers may seek additional warranties about the financial records, licence compliance and the absence of disputes, while sellers may seek limits on claims. Have your solicitor review the wording and any limits.
Employees and Entitlements
The contract should list which employees the buyer will offer employment to and how accrued entitlements will be treated. The treatment of prior service, leave and any payments depends on the circumstances and the law. See the Fair Work guidance on transfer of business and obtain employment advice rather than assuming one approach applies.
GST Going Concern
A business sale may qualify as a GST-free supply of a going concern where the requirements in the ATO’s going concern rules are met, including that the buyer is registered or required to be registered for GST, the seller supplies everything needed to continue operating and both parties agree in writing that the sale is of a going concern. If the requirements are not met, the GST outcome depends on the supply and the contract, so settle the wording with your advisers before signing.
Signing to Settlement
Once both parties sign, the contract date starts the timeframes for each condition. A Queensland business sale commonly proceeds in this order:
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Contract signed and deposit paid.
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Finance, due diligence and any trial period satisfied within the agreed timeframes.
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Lease assignment and any licence transfer applications lodged.
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Consents received and the contract becoming unconditional.
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Stocktake completed on or just before settlement.
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Settlement, with the balance paid, adjustments finalised and keys, records and digital assets handed over.
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Training and handover, with any restraint running as the contract provides.
Settlement timing depends on finance, due diligence, the lease and any regulatory approvals. The contract should set workable dates and extension provisions where consents are outside the parties’ control.
Roles in the Transaction
The solicitors draft and review the contract, advise on the special conditions and handle settlement. A broker may help qualify buyers, negotiate commercial terms before the contract is drawn and coordinate the parties and advisers as conditions are satisfied.
Price, allocation, stock treatment, handover and restraint are commercial points settled in negotiation. A free business appraisal can help a seller understand what the market may support before those discussions begin.
Settle the Terms First
Agree the commercial terms, conditions and timeframes before the contract is drafted, and have your solicitor and accountant review the allocation, employee terms and GST treatment before you sign.
Before your solicitor drafts the contract, Bond Business Brokers can help you work through the commercial terms of your sale or purchase.
Common Questions
Is the information memorandum part of the contract?
Usually not. It is a marketing document and typically includes a disclaimer. Information a buyer relies on should be tested in due diligence or covered by a warranty in the contract.
Can the contract be changed after signing?
Changes generally need the written agreement of both parties. Have your solicitor document any variation, particularly where it affects dates, conditions or the price.
How is the business name transferred to the buyer?
Registered business names are transferred through the Australian Securities and Investments Commission (ASIC). Check ASIC’s current process and include any transfer steps in the settlement requirements.
This article provides general information only. Obtain advice from appropriately qualified advisers about your circumstances before entering into a transaction or relying on tax, legal or regulatory information.