Buying or Selling A Business: Expectations of a Simple Transaction?

Posted On: Wednesday, March 30th, 2016  In: Blog

In the last few months we have assisted a number of clients to both buy or sell businesses including professional practices. These should be simple transactions but in nearly every case they have turned into an epic saga. In any transaction there are usually six parties. The purchaser and the vendor and each will have their accountant and solicitor. One of the parties, being us is not a problem but any of the other 5 including our client can cause serious issues and delays. Nowadays tax impinges on any transaction and thus the accountants try to get the best tax outcome for their clients. The problem is that a tax benefit for one party tends to be a tax liability for the other. Another issue is that the lawyers want to disclaim any liability for tax consequences and state that they are not tax experts and the client has to get their own tax advice. The accountants then state that they are not lawyers and are prohibited from giving legal advice under the Legal Profession Acts. So how does a clause get written about GST in a contract???

Especially in the professions there is usually a transition period of a few years and thus further conflicts arise in the structure that will apply in this transition period. More issues arise, in  current times, when google will provide you with lots of information about buying and selling businesses and the structures that can be used. The Taxation Office is also battling to keep up to date with the structures that businesses wish to use. It regularly issues interpretations and rulings which invariably change and thus confuse clients and advisors.

A further issue arises if the purchaser needs to borrow money for the purchase. You then have another party plus its lawyers, valuers and credit analysts involved.

Our advice to clients is to be patient, expect the transaction to go for months and be prepared for one of the parties to cause unnecessary issues. The good news is that we have the expertise to assist our client through this minefield.

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