20 March 2015
Dear Mentor, we act for the 2 vendor parties in a sale of business by shares to the eventual purchaser. The sale of this business is occurring in two steps: the first agreement sells the remaining shares to the majority shareholder and the second agreement sells 100% of shares now owned by a the majority shareholder to the business purchaser.
We have drawn up and are ready to execute these two agreements. However we are unsure whether going concern provisions apply due to the fact that we believe this to be a sale of shares which are a financial supply and are thus not exempt from going concern provisions. Furthermore, for a sale of business by shares, is it common to include the standard vendor warranty provisions (such as financial statements, business records, taxation etc.) found in the LIV standard sale of business contract? We do not feel that these are necessary.
You are correct to identify this transaction as a sale of shares.
Therefore it is not a sale of a business. The company may conduct a business, but the business is not being sold.
The sale of shares is a financial supply and therefore not subject to GST (i.e. the going concern exemption is irrelevant as GST does not apply, irrespective of a going concern).
The parties are free to include as much, or as little, information in the sale contract as is agreed.
One matter to consider is, if the company is a tenant, will the change in share ownership constitute an assignment requiring landlord's consent? Consult the lease.
Regards Mentor
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