Business Law involves the entire lifecycle of a business, from starting, running, and growing, all the way through to selling a business. Turner Hopkins has experience across all of these stages, ensuring our clients receive sound commercial and practical advice to assist them in all legal matters relating to their business venture.
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Supporting your business ambitions
Buying or Selling a Business
Purchasing a business is a decision that should not be taken lightly. Whether you are buying a small home franchise business or multimillion-dollar manufacturing business, it’s essential that you get the advice you need to ensure you are making the right choice for you, your risk appetite and your goals.
Likewise the process of selling a business starts long before a Sale and Purchase Agreement is signed. There are important steps to consider to ready your business for sale.
If you’re looking at buying or selling a business, it’s never too early to reach out to get the right advice. We’ll help you through the process of preparation and due diligence with trusted guidance.
Business Structures and Risk
The business structure you will impact on many aspects such as start up costs, taxation matters, applicable tax rates and your legal obligations. Therefore, it’s a choice you want to get right. Limited Liability Companies are by far the most common vehicle operating in New Zealand for small to medium enterprises.
It has become more prevalent in recent times to carefully assess business risks and from a borrower's perspective limit the risk to the immediate assets. Proprietors are no longer willing to simply offer guarantees with supporting collateral securities over houses, investment properties and other similar assets.
We also advise clients that it is important, where a family trust or other entity is called upon, to offer security securing a trading entity’s funding. The family trust should receive security from the company as consideration for the securities it is offering.
With these complexities to keep in mind, we can help you consider the bigger picture when it comes to business structure and risk.
Shareholder disputes
When embarking on any commercial enterprise it is important for the parties to turn their mind to the potential for disputes in the future and agree upon a fair and cost effective method for dealing with these disputes. Mediation through a formal and qualified mediator has become significantly more popular over the last ten years. It offers the advantages of speed, privacy and cost effectiveness.
There are other options including arbitration and litigation. At Turner Hopkins, we have experience in mediation, arbitration and formal litigation should you be required to embark on any of these processes.
Due diligence
We believe the best approach is to form a team of professionals to assist a vendor or purchaser throughout the due diligence period of a transaction to ensure comprehensive advice is obtained on all aspects of a transaction; including assets values, trading history, resource management issues, leasing issues, marketing and competition. We’re available to provide advice from both the vendor and purchaser's perspective.
Financial structures
Turner Hopkins has in-depth knowledge around complex financial structures, funding and finance. There are both benefits, and, in some case disadvantages depending on the structure used which should be understood from the outset.
Or call +64-9-486-2169
Your Business Law specialists
Phil Shannon
Partner
Kate Chivers
Principal
Joy Yuan
Principal
Stephen Gulley
Consultant
Frequently asked questions
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A Sale and Purchase of a Business Agreement (SPA) is the agreement between the owner of a business (the Vendor) and a purchaser relating to the sale of the goodwill and assets (both tangible i.e. the physical assets such as equipment and the intangible assets such as good will and any intellectual property)and any stock. In New Zealand the most common form of agreement which is used is the agreement which is produced by the Auckland District Law Society Inc.
The agreement contains the commercial terms which have been agreed including the purchase price, the amount of any deposit payable, the main terms of any premises lease, a list of the assets which are being purchased, the name of the business, details of any warranty provided in relation to turnover, details relating to any assistance to be provided by the vendor after the settlement date, details of any restraint of trade which will apply to the vendor after the business is sold.
There may also be conditions which must be satisfied within specified time frames before the purchaser is legally obliged to proceed to purchase the business. These typically include:
Landlord approval (where the purchaser is taking over a lease of the premises from which the business operates);
Due Diligence - this allows the purchaser a specified period of time to make detailed investigations about the business to ensure that they want to proceed to purchase; and
Finance - this provides that the agreement is conditional on the purchaser obtaining the funding they need to be able to fund the purchase of the business.
The agreement also contains general terms relating to the operation of any conditions, what happens if either the vendor or the purchaser breaches any term of the agreement or there is a dispute between them and details of the settlement process.
It is most often the case that there will need to be additional terms added to the standard Agreement for Sale and Purchase of a Business. These additional terms may deal with matters such as employees, intellectual property, additional vendor warranties and vendor finance.
Whether you are a vendor or a purchaser of a business, it is essential that you obtain professional advice from both an accountant and a lawyer. The commercial team at Turner Hopkins can help you understand the areas of risk and help you negotiate an agreement which you are comfortable with.
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Each transaction will invariably involve consideration and agreement as to how certain issues are to be treated, e.g. finance conditions, due diligence conditions, treatment of existing staff, compliance issues, leasing issues a lawyer can assist in tailoring the "special conditions" to the particular transaction.
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There are a number of different business structures, which are available to complete the purchase of the business. Often a prospective purchaser will initially enter into the agreement in their own name and nominate the business structure to finally complete the purchase prior to settlement. When considering the most appropriate business structure, normally advice is taken from both the purchaser's accountant and lawyer.
The most common type of business structures are:
Sole Traders
As a sole trader you will operate the business in your own name. Generally, sole trading is appropriate for smaller businesses operated by a single individual who may employ a limited number of employees to assist in the running of the business.
Partnerships
Where two or more individuals (or entities) jointly pool their assets and share the liabilities in the operation of a business. It is common for partners to enter into a partnership agreement defining their rights and responsibilities. If there is no written partnership agreement, the Partnership Act will govern their relationship. Like sole traders, each partner is responsible for all partnership obligations.
Limited Liability Company
This is the most popular entity by virtue of which small to medium sized businesses are operated in New Zealand. The company is a separate legal entity from its shareholders and directors and in most cases all liabilities incurred by the company remain with the company and cannot be levied against the shareholders and directors.
There are other entities which are used such as joint ventures, trading trusts and public companies.
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It is critical to choose the right business structure for your commercial requirements as the structure will impact on:
Start up costs
Taxation matters and applicable tax rates
Your legal obligations and liabilities
Ability to obtain finance and give security
Asset protection
Administration requirements
Succession issues.
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This has been dealt with to some extent in our Leasing page. However, we offer comments below in relation to business leases.
It is essential a purchaser satisfies themselves that the premises are fully complaint to enable the business use to be carried out from the same, eg food and hygiene regulations in respect of cafés, restaurants and the like.
Are there any significant liabilities, which will accrue on settlement for reinstatement of the premises to the original state?
Is the rental a fair market rental for the premises or is it under-rented and it is likely the Landlord will be entitled to increase the rental significantly upon the next rent review date.
Can the business afford the rental, which it is obliged to pay pursuant to the lease? Normally there are ratios relating to businesses, which dictate the percentage of turnover, which the rental should constitute.
Is there a demolition clause contained in the lease, which entitles the Landlord to terminate the lease if they wish to renovate the premises.
