Compulsory Legal Disclosures When Selling a Business
In some States, the law requires that the buyer of a business be provided with certain information when entering into a business sale contract.
In Queensland, Western Australia and New South Wales there are no legal disclosures prescribed by law.
However, legal disclosures are mandated in SA purusant to s.8 Land and Business (Sale and Conveyancing) Act 1994 (SA). In SA, sellers are required to provide prospective buyers of businesses sold for less than $200,000 (exclusive of stock) a Form 2 – Vendor’s Statement. This statement sets out certain particulars and financial details concerning the business over the three previous financial years. It is expected that the $200,000 threshold for a small business will be increased to $300,000 by the end of 2012. This form is usually provided in full (other than buyer’s details) at the time of providing the Information Memorandum to the buyer and then again completed with the contract.
Victoria also has certain disclosure is mandated pursuant to the Estate Agents Act 1980 (Vic) and the Estate Agents (Contracts) Regulations 2008. The seller must provide a Section 52 – Statement for any sale involving a small business. It contains disclosures predominantly about the financial position of the business over the previous two years. A small business is any business being sold for up to $350,000. This statement is not drafted by the business broker and is usually drafted by the seller’s accountant. However, it is usually the business broker who issues the Statement to a prospective buyer. This must be done before the contract of sale is signed or a deposit is paid.
Business brokers must be careful to comply with the prescribed disclosure requirements of SA and Victoria when selling businesses in those jursidictions.
Joe Kafrouni, Legal Practitioner Director, Kafrouni Lawyers
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The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. You should always consult your own legal advisors to discuss your particular circumstances. Kafrouni Lawyers makes no warranties or representations regarding the information and exclude any liability which may arise as a result of the use of this information. This information is the copyright of Kafrouni Lawyers.
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