Selling a Business in Victoria

Buyers buy clean businesses at higher prices. Preparation work in the months before going to market typically includes: tidying up the accounts so the financial story is clear; ensuring tax compliance is up to date; resolving outstanding disputes with employees, customers or suppliers; refreshing key contracts so they are on the buyer's standard terms or at least clearly assignable; renewing the lease (or at least understanding what the landlord will require on assignment); and documenting any informal arrangements that the business relies on.

The same work also dramatically reduces the seller's exposure under post-completion warranties, because the disclosure letter can address known issues openly rather than them being discovered by the buyer mid-deal.

The most consequential decision is asset sale versus share sale. Most small and medium Victorian sales are asset sales because that is what buyers prefer — they take only the assets specified and leave the seller's company behind, with its history and contingent liabilities. Share sales are used where the value sits in the company itself: licences that cannot be transferred, key contracts that prohibit assignment, or property held inside the company. The tax consequences of the two structures can be very different and should be modelled with the seller's accountant before negotiations open.

For eligible small businesses, the small business CGT concessions in Division 152 of the Income Tax Assessment Act 1997 (Cth) can dramatically reduce or eliminate the tax on a sale. The four concessions — the 15-year exemption, the 50 per cent reduction, the retirement exemption and the rollover — can be applied in combination. Eligibility turns on turnover, net asset value, the active asset test and significant individual / connected entity rules. Whether the seller qualifies, and which concessions apply, should be confirmed before the structure of the sale is locked in.

Warranties are the seller's main post-completion exposure. A typical sale contract contains warranties about the ownership of the assets, the state of the accounts, tax compliance, employee entitlements, the validity of key contracts, the absence of litigation, and compliance with relevant laws. The seller's protection comes from:

• caps on liability (often the purchase price, with sub-caps for specific warranties);
• time limits (typically 12 to 24 months for general warranties; longer for tax);
• materiality thresholds and de minimis amounts;
• a full and accurate disclosure letter — disclosed matters carve out the warranty;
• knowledge qualifications where the warranty depends on what the seller actually knew.

Employees do not automatically transfer. The contract should record whether the buyer is offering employment, whether prior service is recognised, and which side pays accrued entitlements at completion. The lease is almost always a critical-path item: landlord consent to assignment can take weeks and the landlord may require a bank guarantee or personal guarantee from the buyer that affects whether the deal proceeds. Key supplier and customer consents to assignment should be identified early.

At completion the seller receives the balance of the price, hands over the assets, and assists the buyer with the transition. The seller will typically remain bound by a restraint of trade, will continue to be exposed under warranties for the warranty period, and will need to deal with any earn-out or deferred consideration arrangements as they fall due. Tax returns for the period to completion need to be lodged and CGT planning given effect. The legal relationship between buyer and seller usually continues for months or years past settlement; how cleanly the deal was documented largely determines how that relationship plays out.