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Selling your business is a big decision to make, and there can be many moving parts to the sale. There are various ways you can go about selling your business, and each has certain characteristics that you need to be aware of. One way you can sell your business is as a going concern. This means that you sell the entirety of your business to a purchaser so that they can pick up and start running it once you complete the sale. This affects what goods and services tax (GST) applies to the sale. There are a few conditions both you and the purchaser need to fulfil to be eligible to sell your business as a going concern. This article will outline these conditions and detail other considerations when selling your business.

What Is a Going Concern?

Selling your business as a going concern means selling everything the purchaser would need to run the business. You include all of the assets necessary to run the business as part of the transaction. 

Such assets would include:

  • the premises;
  • goodwill;
  • fixtures;
  • fittings; and
  • any stock.

For example, say you are selling your cafe. If you are selling it as a going concern, you would include everything you need to run the cafe, such as:

  • coffee machines and other equipment;
  • transferring the lease;
  • the intellectual property rights to any exclusive brandings or logos; and
  • supplier accounts.

Note that this is different from selling some shares in a company or selling your business that a buyer would operate under another name. If you hold all of your company’s shares, you could sell them as a going concern. Also, you need to keep operating your business up until the agreed-upon settlement date. Once you and the buyer have finalised and signed the sale and purchase agreement, they pick up operations after the date of sale.

If you sell your business as a going concern, then provided both you and the other party are registered for GST, the sale can be zero-rated for GST. Effectively, neither side pays nor receives GST on the sale.

Additionally, your price would not include GST, and you do not have to pay a GST output tax as the vendor. This encourages buyers because they do not have to pay any GST input tax, so they do not need to raise more money than required when purchasing a business.

When Can I Sell My Business as a Going Concern?

To be eligible to sell your business as a going concern, there are certain criteria you must meet. These include:

  • the buyer makes a payment or consideration in exchange for your business;
  • you are registered (or able to register before completion) for GST;
  • the buyer is registered (or capable of registering before completion) for GST;
  • both you and the purchaser agree, in writing, to the sale as a going concern; and
  • you supply everything the buyer needs to continue the operation of the business.

You should take extra care to make sure that the other party is registered or able to register for GST. If they are not, then you do not qualify to sell your business as a going concern. You would outline both your and the buyer’s GST status in the sale and purchase agreement. Your lawyer can help you with this process.

Every business does not necessarily have to register for GST. If you sell goods as a hobby or for recreation, you likely would not need to register. But, you have to register for GST if your business supplies goods or services in New Zealand, and:

  • your turnover was at least $60,000 in the past year, or you expect that it will be in the next 12 months; or
  • you add GST to the price of the goods or services you sell.

What Else Do I Need to Consider When Selling My Business?

It is a good idea to get both legal and tax advice if you want to sell your business, particularly if you wish to sell it as a going concern. As part of the sale, you should also:

  • draft a comprehensive business plan;
  • supply income forecasts for buyers to show earning potential;
  • settle any outstanding contractual or legal issues;
  • notify employees of the sale and settle their contracts;
  • negotiate a lease transfer with your landlord; and
  • sell off any assets your business does not need.

Key Takeaways

Selling your business as a going concern means selling everything the buyer needs to continue operation. This includes all business assets, such as equipment and its physical premises. Selling your business in this way means that it is zero-rated for GST. Hence, you do not have to worry about incorporating GST into your price. If you would like more information or help with selling your business as a going concern, contact LegalVision’s business sale lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What does it mean to sell my business as a going concern?

Selling your business as a going concern means selling everything the purchaser needs to keep operating the business. This includes all necessary assets, such as intellectual property or manufacturing equipment.

Can I sell my business as a going concern?

You can sell your business as a going concern if both you and the purchaser are registered for GST in NZ. The sale agreement should specify that you both agree to the sale as a going concern.

Do I need to allow for GST when selling my business as a going concern?

If you sell your business as a going concern, it is zero-rated when it comes to GST. This means that you do not need to include GST in your pricing, and the buyer does not have to pay it.

When do I need to register for GST?

Not all businesses need to register for GST. You do need to register if your annual turnover is over $60,000 (or you expect it will be), or you include GST in the pricing of the goods or services you sell.

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