Monday 26th of October 2020
A business sale is an exciting and emotionally overwhelming time for sellers because of their ass
...ociation with the entity. They want to optimise th...
A business sale is an exciting and emotionally overwhelming time for sellers because of their association with the entity. They want to optimise the revenue generated from the sale while ensuring it is handed over to a qualified owner. Finding the right buyer and completing the due diligence and leadership transition can take several months. The outgoing owner has to make several arrangements for the final transfer that allows them to exit without hassles. These include preparing the legal documents needed to close the deal and entrusting the leadership responsibility to the buyer.
Some documents have to be prepared, while others have to be transferred. They must be drafted and reviewed by an expert lawyer and signed by both parties to be implemented. Both parties must retain copies of these documents to prevent disputes and legal implications later. Entrepreneurs planning to sell their businesses should prepare them in advance to avoid a last-minute rush. Here are the key legal documents needed for a smooth business sale. It helps avoid missing out on any important details and delays the process.
After the business is put up for sale in the market with the help of listings and networking, it is time to receive enquiries. Entrepreneurs must create a team for shortlisting, screening qualified buyers, and carrying out their background checks. These potential buyers will need more business performance and operations details to make decisions. However, this information is confidential and should not be shared without making them sign the non-disclosure or confidentiality agreement.
It ensures that private business data like financial information, product design, and composition details stay safe. If leaked in the public domain, they can make the business lose its unique selling proposition and give competitors an upper hand. Thus, business owners must protect their trade secrets by making the prospective buyers sign the non-disclosure agreement.
The most important legal document to be prepared when putting up a business for sale South Africa is the sale agreement. The contract must include all the relevant details like the purchase price, payment terms, list of assets, liabilities and stocks, business valuation information, representation, warranties, final date for closing the deal and other important ownership transfer information. The agreement must have supplementary documents needed to make the final purchase decision.
The agreements must have all the terms and conditions that both parties must meet. It ensures the sale complies with the legal regulations and that the rights of both parties are protected. Since the terms are agreed and mentioned in the contract, the risk of disputes is minimised.
Every employee working or the business has an employment contract prepared in alignment with the Basic Conditions of Job Act (BCEA) and the Labour Relations Act (LRA). These can be fixed-term contracts or indefinite contracts that do not have a specific end date. These agreements have details about the role and responsibilities of the employee, compensation, leave entitlements, work hours, etc.
These contracts are automatically transferred to the new owner when the business is sold as per the Labour Relations Act. The Act protects employees from unfair dismissal during leadership transition. The new owner must communicate with the employees to check the impact of the transfer of ownership and ensure they are not adversely affected.
South African businesses for sale that fall in the regulated industries category have to notify the regulator about the transfer of ownership. For example, businesses operating under South African Health Products Regulatory Authority, South African Bureau of Standards (SABS), SEZ Act, Minimum Energy Performance Standards (MEPS), Consumer Protection Act (CPA), etc.
The licences and permits acquired by the business must be transferred to the new owner. Also, if the business is following environmental regulations related to waste management and carbon emissions, it must be informed to the buyer. In addition, businesses going through mergers or selling shares have to notify the Competition Commission if the value of the proposed merger is equal to R600 million and the business's annual turnover is no less than R100 million.
Every business has intellectual property, which includes unique and innovative inventions of the entity, such as designs, symbols, images, technology, logos, processes, etc. These are protected with the help of intellectual property rights that prohibit anyone from using or stealing them. The IP laws include patents, copyrights, trade marks and design laws.
The owner can transfer the ownership of the IP of the business to the buyer at the time of the sale. It is known as Assignment, which should be recorded in the CIPC Patent, Design or Trade Mark Register. The outgoing owner of the business for sale in South Africa should also transfer supplier and client contracts held by the entity.
Businesses operate in commercial properties that are usually leased. If the outgoing owner owns the property, it can be sold to the buyer. However, if it is leased, the lease contract must be transferred to the new business owner with the landlord's consent. The lease transfer is known as an Assignment, and the transfer agreement must be prepared for the same by an expert lawyer during exit planning.
The landlord must consent to this transfer and approve the new owner as the property's tenant. If the landlord does not concede, the business sale may not be possible. Also, the assignment clause should be present in the original lease agreement to make this arrangement possible.
Every business procures stock from suppliers and has long-term contracts with them. When the entrepreneur decides to put up the business for sale in South Africa, these contracts must be transferred to the new owner. The supplier must be informed about this transfer of control, and their approval must be sought before the legal document is prepared.
Similarly, certain businesses like corporate catering and commercial cleaning services have long-term contracts with loyal customers. These contracts have to be transferred after getting consent from both parties to ensure a smooth transition.
Wrapping Up
Selling a business requires a lot of paperwork and organisation of all business documents. Legal requirements must be at the forefront of this process to ensure compliance and avoid adverse consequences. It prevents delays and disputes in the sales process.
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