The period between signing and settlement may involve satisfying due diligence and finance conditions, obtaining landlord or third-party consents, dealing with employees, arranging transfers of business assets, completing searches and preparing the final settlement figures.

The exact settlement process depends on the terms of the business sale contract and the type of business being purchased.

Understanding what needs to happen before settlement can help both buyers and sellers avoid delays and ensure the business is ready to change hands.

What is settlement of a business sale?

Settlement, sometimes called completion, is the point at which the business sale is completed in accordance with the contract.

Typically, this involves the buyer paying the amount required at settlement and the seller completing the agreed transfer of the business and its assets.

Depending on the transaction, the buyer may receive control of:

• the business premises;
• plant and equipment;
• stock;
• business records;
• intellectual property;
• business names;
• websites and domain names;
• telephone numbers;
• customer and supplier information;
• keys and access credentials; and
• other assets included in the sale.

However, reaching settlement requires considerably more than simply transferring money and handing over the keys.

What happens after the business sale contract is signed?

The first step is usually to identify all conditions and obligations that must be completed before settlement.

These may include:

• due diligence;
• finance approval;
• landlord consent;
• assignment or grant of a lease;
• franchisor approval;
• transfer or issue of licences;
• third-party consents;
• transfer of important contracts; and
• other conditions specific to the business.

The contract should specify the applicable timeframes and what happens if a condition is not satisfied.

This is why the terms of the contract should ideally be considered carefully before it is signed.

For more information, read Buying a Business in Queensland: What Should You Check Before Signing a Contract?

Due diligence before settlement

If the contract is subject to due diligence, the buyer will generally use the due diligence period to investigate the business in accordance with the terms of the contract.

The investigation may include reviewing:

• financial records;
• material contracts;
• employee information;
• licences and permits;
• plant and equipment;
• intellectual property;
• lease documents;
• supplier and customer arrangements; and
• other matters relevant to the acquisition.

The buyer should pay close attention to the contractual deadline for completing due diligence and the procedure required if the buyer is not satisfied.

A due diligence clause does not necessarily give a buyer an unrestricted right to terminate. The rights of the parties depend on the wording of the particular contract.

For more information, read Due Diligence When Buying a Business in Queensland.

What happens with the business premises?

If the business operates from leased premises, dealing with the lease is often one of the most important pre-settlement steps.

Depending upon the transaction, the existing lease may be:

• assigned from the seller to the buyer; or
• replaced with a new lease between the landlord and buyer.

The landlord may require information about the incoming buyer before giving consent.

There may also be documents to prepare, guarantees to arrange and security deposits or bank guarantees to replace.

Where the business operates from retail premises, additional requirements may arise under Queensland's retail leasing legislation.

The business sale contract should coordinate settlement with the lease arrangements so that the buyer does not complete the purchase without having the required right to occupy the premises.

For more information, read Commercial Leases in Queensland.

What happens to the employees?

Employee arrangements should also be addressed before settlement.

The parties need to determine which employees will remain with the business and how their employment and accrued entitlements will be dealt with.

Issues may include:

• whether employees will be offered employment by the buyer;
• commencement arrangements;
• accrued annual leave and other entitlements;
• recognition of prior service where applicable;
• payroll arrangements;
• adjustments between buyer and seller; and
• information that must be provided to employees.

The position can vary depending upon the particular employee entitlement and circumstances of the transaction, so the employment aspects of a business acquisition should be considered before settlement rather than after the buyer takes over.

What happens to the business name?

Where the registered business name is included in the sale, arrangements need to be made for the buyer to take it over.

ASIC's current process requires the existing holder to initiate the business name transfer through ASIC Connect. The seller receives a transfer number, which the incoming owner then uses to register the business name under the new owner's details.

This is different from selling the company itself.

Where a buyer acquires the shares in the company operating the business, the entity owning the business may remain the same even though ownership of the company changes.

For more information about that distinction, read Buying a Business: Assets vs Shares — What's the Difference?

What other business assets need to be transferred?

The parties should identify all assets included in the sale and determine how each will be transferred.

Depending upon the business, this may include:

• domain names;
• websites;
• social media accounts;
• telephone numbers;
• email accounts;
• trademarks;
• copyright material;
• customer databases;
• software accounts;
• supplier accounts;
• vehicles;
• equipment; and
• other intellectual property.

Some assets can be transferred relatively easily. Others may require the consent or cooperation of a third party.

The fact that an asset is used by the business does not necessarily mean that the seller has an unrestricted ability to transfer it.

What happens to customer and supplier contracts?

A buyer should identify any contracts that are important to the continued operation of the business.

These may include agreements with:

• major customers;
• suppliers;
• distributors;
• payment providers;
• software providers;
• equipment lessors;
• service providers; and
• other commercial partners.

Some agreements may permit assignment. Others may require consent from the other contracting party.

Where a particular contract is critical to the business, obtaining the necessary consent may need to be dealt with as a condition of settlement.

What about licences and permits?

Licences, permits and regulatory approvals require particular attention because not all licences can simply be transferred from one business owner to another.

Depending upon the industry, the buyer may need to:

• apply for a new licence;
• obtain approval to transfer an existing licence;
• satisfy eligibility requirements; or
• obtain regulatory approval before commencing operation.

Where a licence is essential to operating the business, the contract should appropriately address what happens if the buyer cannot obtain the required approval.

What is a PPSR search and why can it matter at settlement?

The Personal Property Securities Register (PPSR) is Australia's national register of security interests in personal property.

Personal property can include assets such as vehicles, machinery, equipment, stock and intellectual property. It does not include land or fixtures.

Where a buyer is acquiring business assets, PPSR searches may identify registered security interests affecting those assets or the seller.

Purchasing personal property without appropriate PPSR searches can expose a buyer to the risk that property remains subject to another person's security interest and may, depending on the circumstances, be repossessed.

The appropriate searches and any releases required will depend upon the structure of the transaction and assets being acquired.

What happens to existing security interests?

If business assets being sold are subject to security interests, the sale contract may require those interests to be released as part of settlement.

This is particularly important where the buyer is expecting to acquire particular assets free of existing security interests.

The required steps should be identified before settlement rather than discovering an issue when the purchase price is ready to be paid.

How is stock dealt with?

Stock is commonly dealt with separately from the fixed purchase price for a business.

The contract should specify how stock is valued and whether there is a maximum amount the buyer is required to purchase.

A stocktake may occur shortly before or at settlement.

Depending upon the contract, the parties may need to agree on matters such as:

• the quantity of stock;
• the value of stock;
• obsolete stock;
• damaged stock;
• unsaleable stock; and
• stock that is not owned outright by the seller.

The final amount payable by the buyer can therefore differ from the headline purchase price.

What are settlement adjustments?

The amount payable at settlement may need to be adjusted to account for expenses or income relating to periods before and after settlement.

The precise adjustments depend upon the business and the contract.

They might concern matters such as:

• rent;
• outgoings;
• prepaid expenses;
• employee entitlements;
• deposits;
• subscriptions; or
• other amounts associated with the operation of the business.

The parties' solicitors and accountants may need to work together to determine the final settlement figures.

Is transfer duty payable when buying a Queensland business?

Potentially.

Queensland Revenue Office states that transfer duty can apply when a person acquires Queensland business assets.

Business assets can include goodwill, business names, statutory business licences, franchise rights, intellectual property, supply rights, trading stock and plant and equipment.

The duty consequences depend upon the transaction.

QRO states that where a business asset transaction is dutiable, duty is generally calculated on the dutiable value, being the greater of the value of the business assets or the consideration paid. Different treatment can apply to vehicles included in the transaction.

Transfer duty should therefore be considered before settlement rather than treated as an unexpected additional cost.

Appropriate taxation and accounting advice may also be required.

What happens on settlement day?

The exact mechanics depend upon the contract, but settlement will generally involve confirming that the parties have completed the required pre-settlement obligations and exchanging the documents, funds and other items required to complete the transaction.

The buyer may be required to pay:

• the balance purchase price;
• the agreed value of stock;
• settlement adjustments; and
• any other amounts required under the contract.

The seller may need to provide or facilitate:

• executed transfer documents;
• possession of the premises;
• keys and access devices;
• business records;
• passwords and login information;
• asset transfers;
• releases;
• licences or approvals;
• lease documentation; and
• other items required under the contract.

The specific settlement checklist should be tailored to the particular business.

When does the buyer take control of the business?

The contract should establish when possession and control pass to the buyer.

In many transactions this occurs upon settlement.

From that point, the buyer will generally assume responsibility for operating the business, subject to the particular contractual arrangements.

The timing should be coordinated carefully so there is no uncertainty about responsibility for trading, staff, customers, premises or business assets.

Is there usually a handover period?

Sometimes.

The buyer may negotiate for the seller to provide assistance or training after settlement.

This can be particularly valuable where the seller has important relationships with:

• customers;
• suppliers;
• employees; or
• other people critical to the business.
• A handover arrangement should clearly specify matters such as:
• how long assistance will be provided;
• the number of hours required;
• whether the seller is paid separately;
• what training will be provided; and
• whether the seller must introduce the buyer to key customers or suppliers.

Leaving these arrangements vague can lead to disagreements after settlement.

What happens to the seller's restraint obligations?

A business sale contract may contain restraints preventing the seller from competing with the business or soliciting customers or employees after settlement.

These provisions are often intended to protect the goodwill purchased by the buyer.

The scope and enforceability of a restraint depends upon its wording and circumstances.

The buyer should therefore understand what protection the contract actually provides rather than simply assuming the seller is prohibited from competing after settlement.

What if one party is not ready to settle?

The consequences depend upon the contract and the reason settlement cannot occur.

Examples of potential problems include:

• finance not being available;
• landlord consent not being obtained;
• a required licence not being approved;
• documents not being ready;
• security interests not being released;
• required third-party consent being outstanding; or
• one party otherwise failing to satisfy a contractual obligation.

The contract may provide rights relating to extensions, default notices, termination, interest or other remedies.

A party should obtain advice before assuming that settlement can simply be postponed.

What should the buyer do immediately after settlement?

Settlement may complete the purchase, but the buyer still needs to ensure that the business can continue operating smoothly.

Post-settlement steps may include:

• taking possession of the premises;
• registering the transferred business name;
• changing banking and payment arrangements;
• updating supplier and customer records;
• arranging insurance;
• updating websites and contact details;
• changing passwords and system access;
• completing licence requirements;
• implementing payroll arrangements;
• notifying relevant stakeholders; and
• ensuring transferred assets are properly recorded.

ASIC's current business-name process requires the incoming owner to use the transfer number supplied by the former holder to register the transferred name.

The precise post-settlement checklist will depend upon the type of business purchased.

Why is settlement planning important?

Business settlement involves coordinating numerous moving parts.

A problem with the lease, licence, security interest, employee arrangements or an important commercial contract can affect the buyer's ability to operate the business immediately after completion.

Preparing for settlement early allows these matters to be identified and dealt with before the purchase price changes hands.

This article provides general information only and is not legal, taxation, accounting or financial advice. Business transactions vary and advice should be obtained about the particular contract and circumstances.