Common Misunderstanding

In my experience, business brokers (and subsequently sellers) are of the view that only the physical assets itemised in the usual ”plant and equipment” type schedules to a business sale contract are included in the sale. Usually this is not so.

The Contract Position

When selling a business utilising the Contract, all assets of the business (excluding real property utilised with the business) are included in the sale.  Clause 3.1 of the REIQ Business Sale Contract (Queensland) provides that:

“The Business includes [emphasis added] the goodwill, fixtures, fittings, furniture, chattels and the plant and equipment, industrial and intellectual property, work-in-progress (if any), and stock in trade, permits, licences, and [emphasis added] any other assets set out in any schedules attached to this Contract (but excluding any Excluded Assets) and which assets are in this Contract referred to as the Business Assets”.

The use of the word “includes”, where emphasised, indicates that the subsequent list is not exhaustive. The use of the word “and”, where emphasised, further indicates that the assets set out in any schedules are only part of the bigger picture. This position is also supported by the inclusion of the definition “Excluded Assets” in clause 1.1.

Therefore, when utilising the Contract, a Seller must proceed on the basis that all assets of the business are included in the sale and not just those items listed in the schedules. If the seller wishes to retain any assets of the business, such assets should be specifically excluded by special condition.

Caution

Caution is required when a seller seeks to exclude business assets from a sale. This is because it may impact on whether the business sale is that of a “going concern” for GST purposes. An important requirement for a business sold as a “going concern”, and consequently GST free, is that all of the things necessary for the continued operation of the business is included. A failure to do so will make the sale subject to GST, again capable of causing a dispute or loss of a sale.

Solution

A suggested solution is to insert a special condition extending the definition of “Excluded Assets” to the assets sought to be excluded.

Author

Joe Kafrouni
Legal Practitioner Director
Kafrouni Lawyers

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