Sale documentation
The business sale process must be supported by clear legal agreements. These documents protect both buyer and seller, set expectations, and record the terms of the deal.
Key documents include:
- Sale and purchase agreement (SPA), which outlines the price, payment structure, settlement terms, warranties, indemnities, and conditions. This forms the backbone of the sale.
- Contract transfers, where key agreements with suppliers, landlords, or customers may need to be reassigned or approved by third parties to remain valid after the sale.
- Intellectual property transfers which include trademarks, patents, copyrights, domain names, websites, and proprietary technology which must be registered under the buyer’s name to protect business continuity.
These contracts are central to the business structure and closure process, and overlooking them could affect the success of the sale.
Non-compete clauses
Buyers often seek reassurance that the seller won’t set up a competing business immediately after the sale. Non-compete clauses, also called restraints of trade, are designed to protect the buyer’s investment.
Such clauses typically restrict the seller from starting or working in a competing business within a defined geographic area and time period. They may also limit the seller from approaching former clients, contacting employees, or using confidential business information.
However, these clauses must be fair and enforceable. For example, restricting a seller from working in the same industry for ten years across the whole of New Zealand would likely be considered unreasonable. A lawyer specialising in commercial contracts can help draft non-compete terms that balance the buyer’s need for protection with the seller’s right to earn a livelihood.
Tax implications
Tax obligations when selling a business are complex, and failing to plan for them can reduce your returns. Important considerations include:
- If the business is sold as a going concern and both buyer and seller are GST-registered, the sale can be zero-rated, meaning no GST is charged. If assets are sold separately, GST must be applied to taxable supplies.
- If an asset sells for more than its tax-depreciated value, depreciation recovery income may arise, creating an additional tax liability.
- Accrued leave, holiday pay, or redundancy obligations must be addressed. In a share sale, these responsibilities transfer to the buyer. In an asset sale, they may need to be settled by the seller.
Because tax treatment varies depending on the sale structure, it’s essential to seek advice early to avoid unexpected costs.
Employee considerations
Employees are often central to the value of a business, so handling their transition with care is crucial. How obligations are managed depends on whether it’s a share sale or an asset sale. In a share sale, existing employment agreements remain in place, and employees continue with the business. This provides stability and continuity. In an asset sale, however, employees may need to be offered new contracts by the buyer, and if they are not re-hired, redundancy payments may apply under the Employment Relations Act.
Employees should be informed about the sale in a timely and transparent way. Early communication helps maintain trust, minimises disruption, and reassures staff about what to expect.
Business sale contracts and compliance
Beyond the sale and purchase agreement, several compliance tasks are required when selling a company. These include:
- Updating the Companies Register to reflect changes in shareholding or directors.
- Notifying Inland Revenue of the sale, and filing all outstanding tax returns.
- Reviewing licences, permits, or industry-specific registrations to make sure they are correctly transferred or cancelled.
- Checking that all ongoing obligations (for example, warranties or service contracts) are documented and agreed upon in the business sale contracts.
By addressing compliance when selling a business, you reduce the risk of disputes later.
Engage professional advisors
Accountants can advise on business sale tax implications, while lawyers will guide you through the legal requirements for selling a business and drafting watertight agreements.
You may also need specialist advice if you are selling a business to investors, transitioning to employee ownership transfer, or managing cross-border elements of the sale. These situations introduce additional complexity, and expert input will help you avoid costly mistakes.
For more information, see Inland Revenue’s resources on buying and selling business assets or shares.
Next steps
- Decide whether your sale will be structured as a share sale or asset sale.
- Prepare legal documentation.
- Register the transfer of business ownership with Inland Revenue and the Companies Register.
- Confirm intellectual property, licences, and permits are transferred to the new owner.
