Small business sale in Victoria
Introduction
Selling a small business is a significant decision and often involves more than simply agreeing on a price. In Victoria, a business sale typically requires careful preparation, legal documentation, and coordination between multiple parties, including the buyer, landlords, agents, accountants, and lawyers.
This guide provides an overview of the legal process involved in selling a small business in Victoria, highlighting the key steps, documents, and common issues that can arise along the way.
What Is Considered a “Small Business”?
The term small business does not have a single fixed definition and can vary depending on the context and the legislation involved.
In the context of selling a business in Victoria, a small business generally refers to a business that:
Is owner-operated or closely held
Has a relatively modest turnover and number of employees
Operates from leased premises or a single location
Is sold by way of an asset sale rather than a company share sale
Examples of small businesses commonly sold in Victoria include cafés, restaurants, retail shops, service businesses, and hospitality venues.
Different laws may apply depending on the nature of the business, including whether the business operates under a retail lease, whether it employs staff, and whether it is subject to industry-specific regulation. As a result, the legal process and disclosure requirements can vary from one transaction to another.
Step 1: Preparing Your Business for Sale
Before placing your business on the market, it is important to ensure that your affairs are in order. This preparation stage can have a significant impact on how smoothly the sale progresses.
Common preparation steps include:
Confirming ownership of business assets (such as equipment, intellectual property, and goodwill)
Reviewing existing contracts, including supplier agreements and licences
Ensuring financial records are up to date
Checking whether the business operates from leased premises and, if so, reviewing the lease terms
Early preparation can help identify issues that may otherwise delay negotiations or settlement.
Step 2: Understanding What Is Being Sold
A sale of business is not the same as selling a company or property. Typically, a business sale involves the transfer of:
Business assets
Goodwill
Plant and equipment
Intellectual property (such as business names or trademarks)
It usually does not include:
Company shares (unless structured as a share sale)
The seller’s liabilities (unless expressly agreed)
Clearly defining what is included and excluded from the sale is a critical part of the legal process.
Step 3: Entering into a Contract of Sale
Once a buyer is found, the parties generally enter into a contract of sale of business. In Victoria, this is often based on standard form contracts, with amendments made to suit the particular transaction.
The contract will usually deal with:
Purchase price and deposit
Conditions precedent (such as finance or landlord consent)
Adjustment of outgoings
Training or handover arrangements
Restraint of trade provisions
Settlement date and handover of the business
The terms of the contract can have long-term legal and financial implications, so careful consideration is important.
Step 4: Disclosure Obligations
Sellers of small businesses in Victoria may have disclosure obligations, particularly where the business operates under a retail lease or involves regulated industries.
Disclosure documents may include:
Vendor statements
Financial information
Lease disclosure statements
Details of licences, permits, or compliance requirements
Incomplete or inaccurate disclosure can lead to disputes or claims after settlement.
Step 5: Dealing with the Business Lease
If the business operates from leased premises, a transfer or assignment of lease is usually required. This process involves the landlord and often takes longer than sellers expect.
Key points include:
Landlord consent is generally required
The landlord may request financial information about the buyer
Legal costs may be payable in connection with the transfer
Timing of lease approval can affect the settlement date
Lease issues are one of the most common causes of delay in business sales.
Step 6: Due Diligence and Pre-Settlement Steps
After the contract is signed, the buyer will usually undertake due diligence. During this period, both parties must also prepare for settlement.
This may involve:
Responding to buyer enquiries
Finalising lease transfer documentation
Preparing settlement adjustments
Confirming payment arrangements
Clear communication between all parties is key at this stage.
Step 7: Settlement and Handover
Settlement is the point at which ownership of the business transfers to the buyer. On settlement:
The balance of the purchase price is paid
Legal documents are exchanged
The buyer takes possession of the business
Keys, access details, and records are handed over
Post-settlement obligations may also apply, such as training periods or restraint of trade compliance.
Common Issues That Can Delay a Sale
Some common issues that arise during business sales include:
Delays in landlord consent
Unclear lease terms
Incomplete disclosure
Disputes about adjustments
Timing issues around finance or bank payments
Understanding these risks early can help sellers manage expectations and reduce stress during the process.
Final Thoughts
Selling a small business in Victoria involves multiple legal steps and careful coordination. While every transaction is different, understanding the general process can help business owners feel more confident and prepared.
If you are considering selling a business, obtaining advice tailored to your specific circumstances can help ensure the process runs as smoothly as possible.
Disclaimer
This guide is general information only and does not constitute legal advice. It relates to Victorian law only.