{"id":203335,"date":"2021-03-09T17:56:41","date_gmt":"2021-03-09T04:56:41","guid":{"rendered":"https:\/\/legalvision.co.nz\/?p=203335"},"modified":"2021-03-09T18:41:58","modified_gmt":"2021-03-09T05:41:58","slug":"obligations-when-selling-business","status":"publish","type":"post","link":"https:\/\/legalvision.co.nz\/business-structures\/obligations-when-selling-business\/","title":{"rendered":"What Are My Obligations When Selling My New Zealand Business?"},"content":{"rendered":"<p><span style=\"font-weight: 400\">You may find that you have come to a point where you want to sell your business. Perhaps it is time to retire, or your circumstances have changed and running the business is no longer viable. Selling a business requires thorough and careful consideration of its value and what exactly you are showcasing for potential buyers. Otherwise, you could open yourself up to potential legal issues further down the track. This article will explain some of your legal obligations as a seller of a business and issues you need to consider.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Asset Sale vs Share Sale<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Firstly, it is essential to distinguish between an <\/span><b>asset sale<\/b><span style=\"font-weight: 400\"> (or a business sale) and a <\/span><b>share sale<\/b><span style=\"font-weight: 400\">. Whether you conduct an asset sale or a share sale will affect your tax obligations, so it is essential to consult with a specialist tax advisor. The key differences are that:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">asset sales involve the transfer of your assets to the buyer, like your intellectual property or business equipment; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">share sales involve your company\u2019s shareholders agreeing to sell their shares to the buyer.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">This article focuses on your obligations when conducting an <\/span><b>asset sale<\/b><span style=\"font-weight: 400\">.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Preparing Your Business for Sale<\/span><\/h2>\n<p><span style=\"font-weight: 400\">The first thing you need to do is ensure that you are ready to sell your business. This entails tying up loose ends and following up with important contracts. You also need to decide how you will advertise your business to buyers.<\/span><\/p>\n<p><span style=\"font-weight: 400\">As a part of the negotiating process, buyers will conduct due diligence as they decide to purchase your business. So, you should ensure that your business is in good shape by reducing any detracting factors. This means:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">settling business accounts;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">selling any assets the business does not need;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">getting the business\u2019 finances in order;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">halting any long term investments;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">reducing potential risks, such as health and safety compliance issues;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">drawing up an effective business plan to show buyers;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">summarising earning potential with financial forecasts;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">drafting a succession plan; and<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">drafting an information memorandum for buyers.<\/span><\/li>\n<\/ul>\n<div class=\"box box--info box--icon\">\n<p><span style=\"font-weight: 400\">If you are selling machinery or equipment as part of the business, ensure they are clean and in good repair before you sell.<\/span><\/p>\n<\/div>\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+64800005570\" class=\"not-prose\">0800 005 570<\/a> for urgent 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If these are <\/span><a href=\"https:\/\/legalvision.co.nz\/regulatory-and-compliance\/what-is-misleading-or-deceptive-conduct-in-new-zealand\/\"><span style=\"font-weight: 400\">misleading and disadvantage the buyer<\/span><\/a><span style=\"font-weight: 400\"> in any way, you risk facing legal ramifications. Therefore, it is essential to be upfront about your business and be as accurate as possible with the forecasts you make.<\/span><\/p>\n<p><span style=\"font-weight: 400\">When you outline the warranties in your sale and purchase agreement with a buyer, you should make sure that they are true and accurate<\/span><\/p>\n<div class=\"box box--info box--icon\">\n<p><span style=\"font-weight: 400\">Ensure your business keeps accurate records, as they can help back up what you say to buyers. They suffice as comprehensive evidence for your claims.<\/span><\/p>\n<\/div>\n<h2><span style=\"font-weight: 400\">What Are You Transferring?<\/span><\/h2>\n<p><span style=\"font-weight: 400\">You should also decide how you are going to sell your business. In an asset sale, the purchaser can pick and choose which assets they wish to buy. This means that the purchaser can leave you (the seller) with some assets and liabilities relating to the business after the sale.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">In a 100% share sale, the purchaser takes on all assets and liabilities of the company through which you run the business (whether known or unknown).\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400\">Under an asset sale, you also need to consider how you will transfer existing contracts involving your business to the buyer. These contracts could include:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">lease agreements for your business premises;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">supply contracts with key product suppliers;<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">client contracts; or<\/span><\/li>\n<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">employment contracts.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400\">Further, you should ensure that you do not have any outstanding responsibilities under these contracts once you finalise your business\u2019s sale.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">What Legal Documents Do I Need?<\/span><\/h2>\n<p><span style=\"font-weight: 400\">You should write up the terms of your business sale in a <\/span><a href=\"https:\/\/legalvision.co.nz\/property-and-leasing\/legal-considerations-sale-and-purchase-agreements\/\"><span style=\"font-weight: 400\">sale and purchase agreement<\/span><\/a><span style=\"font-weight: 400\">. This will outline the end product of negotiations with the purchaser and detail your obligations as a seller. It is important to ensure that the terms in this contract are fair and reasonable, and you follow through on any promises you make. This document will also include any conditions you need to fulfil before you can complete the sale.<\/span><\/p>\n<div class=\"box box--info box--icon\">\n<p><span style=\"font-weight: 400\">For example, getting consent from your landlord to assign the premises, or from third parties to your key business contracts to the assignment of those contracts to the purchaser.<\/span><\/p>\n<\/div>\n<p><span style=\"font-weight: 400\">The conditions may also deal with matters to be completed by the purchaser before the sale is confirmed. <\/span><\/p>\n<div class=\"box box--info box--icon\">\n<p><span style=\"font-weight: 400\">For example, the purchaser may specify in the sale and purchase agreement that they will not buy the business until they have completed a due diligence period.<\/span><\/p>\n<\/div>\n<p><span style=\"font-weight: 400\">Further, you will likely be sharing sensitive information with your purchaser, like client information or trading information. So, you may also want to draft and sign a <\/span><a href=\"https:\/\/legalvision.co.nz\/commercial-contracts\/when-to-use-a-non-disclosure-agreement-in-new-zealand\/\"><span style=\"font-weight: 400\">non-disclosure agreement<\/span><\/a><span style=\"font-weight: 400\"> outlining what information is restricted and confidential between you and the purchaser.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Obligations to Employees<\/span><\/h2>\n<p><span style=\"font-weight: 400\">If your business has employees, you have <\/span><a href=\"https:\/\/legalvision.co.nz\/business-sale-and-purchase\/employees-sale-of-business\/\"><span style=\"font-weight: 400\">responsibilities as an employer when selling your business<\/span><\/a><span style=\"font-weight: 400\">. You may not be able to tell employees everything about the sale. However, you need to tell them about the sale proposal and make sure they know their options. This could mean transferring their contracts to the buyer as their new employer or terminating their contracts if they wish.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Key Takeaways<\/span><\/h2>\n<p><span style=\"font-weight: 400\">Selling your business is a complex process. Being upfront about your business and following through on any promises you make are crucial to fulfilling your various legal obligations. If you would like more information or help with selling your business, contact <\/span><a href=\"https:\/\/legalvision.co.nz\/business-sale-purchase-lawyers-lp\"><span style=\"font-weight: 400\">LegalVision\u2019s business sale lawyers<\/span><\/a><span style=\"font-weight: 400\"> on 0800 005 570 or fill out the form on this page.<\/span><\/p>\n<h2><span style=\"font-weight: 400\">Frequently Asked Questions<\/span><\/h2>\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1615265328824\"><strong class=\"schema-faq-question\"><strong>How do I sell my business?<\/strong><\/strong> <p class=\"schema-faq-answer\">To sell your business, you should make sure that it is ready to sell first. This means tying up any loose ends, as well as drawing up a business plan for potential buyers. You should also complete any ongoing financial or legal matters. Likewise, you can find an independent expert to help you. This could be a lawyer or a business broker.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1615265349847\"><strong class=\"schema-faq-question\"><strong>What are my obligations when I sell my business?<\/strong><\/strong> <p class=\"schema-faq-answer\">When you sell your business, you have to be upfront about its potential success and its current commercial state. You may also have different tax obligations that apply depending on how you sell your business.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1615265366895\"><strong class=\"schema-faq-question\"><strong>Should I sell my business?<\/strong><\/strong> <p class=\"schema-faq-answer\">Whether you decide to sell your business depends on your unique situation and your business\u2019 viability. You may decide that it is time to move on to something else, or perhaps your business is in a good state for selling. Either way, it is a big decision to make so you should consider all of your potential options.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1615265383049\"><strong class=\"schema-faq-question\"><strong>Do you pay tax when you sell a business in New Zealand?<\/strong><\/strong> <p class=\"schema-faq-answer\">There is no capital gains tax in New Zealand, so you will not have to worry about accounting for that. However, GST (goods and services tax) may apply depending on how you sell your business, and there may be other tax obligations.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"3bc3beddae\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/203335\" \/>            <input value=\"https:\/\/legalvision.co.nz\/business-structures\/obligations-when-selling-business\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"What Are My Obligations When Selling My New Zealand Business?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>You may find that you have come to a point where you want to sell your business. Perhaps it is time to retire, or your circumstances have changed and running the business is no longer viable. Selling a business requires thorough and careful consideration of its value and what exactly you are showcasing for potential<a href=\"https:\/\/legalvision.co.nz\/business-structures\/obligations-when-selling-business\/\">Continue reading <span class=\"sr-only\">&#8220;What Are My Obligations When Selling My New Zealand Business?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13236,"featured_media":201728,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[4],"tags":[25,431,559,648,663],"class_list":["post-203335","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-structures","tag-small-business","tag-employment-rights","tag-selling-a-business","tag-sale-and-purchase-agreement","tag-asset-sale"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Obligations When Selling Your NZ Business | LegalVision New Zealand<\/title>\n<meta name=\"description\" content=\"Are you considering selling your business? 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