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When buying a business in New Zealand, there are plenty of important factors to consider. Such factors include the business’ financials, growth prospects, and broader industry dynamics. However, one of the most crucial aspects of any business is its employees, particularly during a business sale. This article will cover three key employment issues, including: 

  • identifying key staff in the business; 
  • what happens to employees in an asset sale versus a share sale; and
  • the business’ immediate workforce needs. 

Identifying the Business’ Key Employees

When evaluating whether to purchase a business, it is crucial to identify its key employees. As a purchaser, you should understand the contributions of different senior staff. It may be the case that a select group of employees controls the business’s key relationships with clients or suppliers. In this case, it is essential to understand how they might respond when the business is sold. Likewise, try to determine whether this might have the impact of losing valuable clients or suppliers. 

Usually, the smaller the business you are buying, the less depth in management layers there is. This means that it can be easier to evaluate who the business’ key employees are. Still, it also increases the risk that a select senior employee or two is in charge of too many parts of the business. This can be a red flag for your purchase if these employees leave following the purchase, not leaving anybody able to assume the responsibilities of those key employees adequately. 

Further, understanding the business’ key employees should inform your strategy as a purchaser. Depending on the business and the position of key employees, retaining senior staff may have to be a priority as you proceed with the purchase. 

What Happens In An Asset Sale Versus A Share Sale

When purchasing a business’ assets versus its shares, you may face more significant employment issues. The purchase structure will change in each case, with implications for what happens to the business’ employees. 

In a share purchase, where you are buying the business’ shares, these essentially transfer these to you. Little else changes. The business’ contracts, including with clients, suppliers and employees, remain intact. Therefore, employees can continue on a business-as-usual basis, with no change to their employment conditions. Hence, a share purchase usually results in a smooth transition.

Alternatively, if you are leaning towards buying the business’ assets, the business’ employment may cease. This is because, in an asset sale, you are essentially transferring business assets from the previous owner to you. Accordingly, you will need to consider how you will transfer existing employment contracts or enter into new employment agreements with all employees. In some cases, employees may opt to leave the business. Unfortunately, this can increases the administrative burden upon purchase as you need to ensure that the business retains employees. Importantly, you also want to retain key employees, as covered above. 

What Are the Business’ Workforce Needs

A final issue to think about is what the business’ immediate and medium-term workforce needs are. After purchasing a new business, you may need to address an employee shortage to cover immediate needs. There are related issues when thinking about the business’ workforce planning. Additionally, you will need to ensure that the business has sufficient cash flow to support new employees if they are needed. 

It is also worth conducting some long-term planning about the business’ workforce needs. Ask yourself:

  • Is there likely to be additional demand due to reforms or restructures that you are planning to implement? 
  • What will the implications be for staff, and can existing employees manage the additional work? 

Key Takeaways

There are many relevant and essential employment issues to think about when purchasing a business in New Zealand, because they may become a red flag. For instance, if the business relies on a few key employees who are likely to leave the business following the purchase, this is crucial to consider. Other relevant issues include the difference between an asset purchase and a share purchase, and the short-term and long-term needs of the business in workforce planning. If you want to know more about employment issues to consider when purchasing a business, contact LegalVision’s employment lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What happens in an asset sale versus a share sale?

In a share sale, ownership of the business transfers so contracts such as existing employment agreements continue to operate as they usually would. By contrast, in an asset sale, the business’ employment agreements all cease and need to be re-negotiated. 

What are key staff in a business?

Key staff are employees that have outsized importance or responsibilities for a business. For instance, they may have a uniquely deep understanding of the business’ finances or manage the business’ key relationships with clients or suppliers.

How vital are employment issues when buying a business?

Employment issues are always important when buying a business. You should understand how different employees are responsible for different parts of the business and what that means for you as a new owner. They can become a critical issue if there are red flags, such as when key employees are likely to leave the business following a purchase.

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