Buying a business
There can be some significant advantages to buying an existing business instead of starting your own business from scratch. In many cases, it means someone else has already done a lot of the hard work developing the business for you, although you will of course have to agree a price that works for both buyer and seller.
When you buy a business, you need to consider the legal and tax obligations as much as the pros and cons of the purchase or any other issues.
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If the business you’re buying is a company, it will already be registered with the Companies Office, which holds all the details of company directors and shareholders on public record.
Once you have purchased the shares (or a controlling share) of the company, the vendor must let the Companies Office know of the director and shareholder changes.
As part of the purchase you should be granted company authority, which allows you to use the Companies Office online services to update the company’s details on the companies register.
Once you’ve purchased the business, go online and use your company authority to make sure the company’s director and shareholder details have been updated appropriately.
Find out about company authority with the Companies Office.
Tip: before buying a business ask the existing owner(s) if they’ve any form of registered or unregistered intellectual property. This could prove valuable, especially if they have a recognised brand or offer a unique product.
Buying a business has GST implications.
A contract to buy an existing business should state whether the transaction is GST-inclusive or GST-exclusive. If the buyer is under the impression it is one when it is the other, the purchaser could find they owe GST on the purchase or miss the chance to claim GST as a business expense.
On the sale of a GST registered business, GST could be charged at 15% or 0%, depending on the circumstances. Again, it is important both the buyer and seller know the rate that applies, and ideally this should be included in the contract.
Always consult an accountant or tax adviser on the GST implications of purchasing a business before you buy.
Income tax implications
Buying a business will also have income tax implications, and again how the sale and purchase agreement is written can be very important. It pays to consult an accountant or tax adviser on the income tax implications before you buy.
When you buy a business with existing staff, you must continue to employ them and become their new employer if it is stated as a clause of the purchase contract. If it isn’t, you can negotiate new contracts with existing staff or seek new staff as you see fit.
If existing staff aren’t required, it is the seller’s responsibility to wind up any employment agreements before you take over.
However, there are special conditions that regulate the effects of changes and restructuring for employees in the following industries.
- Cleaning and food catering services.
- Laundry services in education, health or age-related residential care sectors.
- Orderly services in health or age-related residential care sectors.
- Caretaking services in the education sector.
Find out more with the Department of Labour.
Find out more about Restructuring.