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Getting your Trinity Audio player ready...
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- By Aleisha Goldsmith, Franklin Law
When it comes to buying a business, there are (usually) two ways of doing this. The purchaser buys the “business” from the vendor company, or the purchaser buys the “shares” from the company that owns the business.
Each option has its own advantages and risks, and choosing the right approach depends on
various factors.
Buying the business
This normally involves purchasing the assets of the business from the vendor company; these may include equipment, inventory, goodwill, website, and client list. On settlement, these assets become the unencumbered property of the purchaser. The vendor remains responsible for the debts and liabilities of the business incurred up to settlement.
The agreement will also deal with the termination or continuation of staff arrangements, use of business names, websites, telephone and communications, assignment of any leases and long-term supply contracts to ensure the continuation of the business with the new owner.
The main advantage of this option is that the purchaser starts with a clean slate of the business.
Buying the shares
This involves purchasing either some or all shares of the company. While the ownership of the company will change, the ownership of the business continues, and all the normal aspects of the business operation can largely be left in place, subject to any necessary consents from suppliers and landlords as required. All employees remain employed by the same company.
A disadvantage with purchasing shares is that any liabilities remain with the company, like tax.
Disclosed liabilities are not a problem, but unknown ones that relate to the product/service claims may surface after the change of ownership.
We can protect a purchaser from unknown liabilities by including comprehensive warranties in the agreement. However, it is up to the purchaser to enforce these warranties should an issue arise, which can be costly and time-consuming.
We typically see share purchases occurring when someone wishes to acquire only part of the company, or a shareholder wishes to exit.
Whether you purchase the business or the shares, to ensure no unexpected surprises, it is
important to have an agreement that deals with issues relevant to you.
Franklin Law 0800 842 972 www.franklinlaw.co.nz info@franklinlaw.co.nz
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