What Assets are Included?

To include or not to include … what assets of the business must be sold with the business?

When selling a business, the starting point for owners should be that all assets of the business are sold with the business. Often, business owners form the view that only the assets itemised in the usual ”plant and equipment” type schedules to a business sale contract are included. Depending on the wording of the particular business sale contract used, this may be the case. However, in our experience, this is not the case with most contracts including the REIQ Business Sale Contract. Clause 3.1 of the REIQ Contract provides that:

“The Business includes 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 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 highlighted] indicates that the subsequent list is not exhaustive. The use of the word “and” [where highlighted] further indicates that the assets set out in any schedules are only part of the bigger picture.

Solution: The Seller must proceed to contract on the basis that all assets of the business are included in the sale and not just those items listed in the schedules. To do otherwise may lead to a dispute between the seller and buyer not to mention a loss of the sale. If the Seller wishes to retain any assets of the business, such assets should be specifically excluded in a special condition or schedule to the contract. If using the REIQ Business Sale Contract, a clause extending the definition of “Excluded Assets” in clause 1.1 is appropriate.

Please take caution when a seller seeks to exclude assets of a business. It should be recommended that they obtain advice from their accountant first. An important consideration in a business being sold as a “going concern” and consequently GST free is that all of the things necessary for the continued operation of the business are included. A failure to do so will make the sale subject to GST, again capable of causing a dispute or loss of a sale.

Joe Kafrouni, Legal Practitioner Director, Kafrouni Lawyers

Disclaimer

The information provided by Kafrouni Lawyers is intended to provide general information and is not legal advice or a substitute for it. Business people should always consult their own legal advisors to discuss their 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.

Liability limited by a scheme approved under professional standards legislation.

‍