First published in NZ Winegrower, June-July 2013 edition.
One of the most crucial decisions in the life of a business is deciding
whether the business will be passed on to family members or whether the business
should be sold. Regardless of which option is pursued, a business requires a
warrant of fitness to be a viable option.
This will require ensuring that business records are sufficient for the
purposes of due diligence by a prospective purchaser, trustee or extended
family. By anticipating the requirements of the due diligence process, the
viability of a business as an attractive option for purchase or succession will
Due diligence is about ensuring that a decision to purchase a business is
fully informed and that there will be no future unpleasant surprises. It enables
the purchaser to rely on his or her own investigations, information gathered and
judgment as to whether or not the business is a sound investment.
Warranties as to the state of the business are only as good as the person
giving them. Undertaking appropriate due diligence processes will assist in
precluding future liability of the vendor. Essentially, the due diligence
process represents a checklist for the purchaser on acquisition of the business
whether by way of succession or by sale.
Purchaser's checklist on succession and/or sale
Anticipate speculation on behalf of the purchaser or successor as to the
reason for succession and/or sale
Changes in character of the locality.
Lack of competitive strengths.
Expiring lease or franchise.
Imminent rent review.
Future loss of business because of actual or anticipated changes in
Change in zoning.
Change in roading.
Problems with creditors or suppliers.
Critical staff retiring.
Bad reputation which may stay with the business.
Capital assets require replacement.
If any of these reasons have promoted the sale or succession of the business,
they will have consequent effect on the purchase price.
Action List by the Solicitor or Professional Adviser for the
Purchaser or Successor
The solicitor or professional adviser assisting the successor or purchaser
will undertake a review of the instruction, status and contractual arrangements
pertaining to the business. This will include the following:
The components of the purchase price.
GST and tax positions.
The chattels being purchased.
Grape supply contracts.
Licences to operate the business (e.g. Sale of Liquor Licences and Food
Premises Registration Licences).
Warranties required from the vendor. Examples are warranties as to the
financial accounts, turnover, a period of assistance from the vendor, restraints
of trade, encumbrances on the property, debts, liabilities, licences and
Review the title and any lease or licence documentation.
The means of funding the purchase.
The payment of any fees.
There are a number of different ways a business can be owned. The most common
ownership structures include:
The right ownership structure for a business can only be ascertained by a
review of the particular facts and circumstances of each case.
However, many businesses are owned directly or indirectly by the trustees of
a trading trust or a family trust. The trustees may own the assets of the
business directly or may own shares in a company that carries on the
There can be some advantages to having the business owned by the trustees of
a trust, including creditor protection and as a mechanism for "passing" the
business to family members (in their capacities as beneficiaries of the trust)
without, for example, needing to transfer ownership of the shares if they are
held by the trustees.
When considering succession planning, it is important that you have an up to
date Will. It can also be useful to put in place enduring powers of attorney in
relation to property and in relation to personal care and welfare.
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.