What to Know Before Selling a Business in New Zealand

Who is the Owner?

Your business it will be run through a company. For tax reasons you might have some shares in it. However, in most cases the shares will be owned by a family trust. Technically, you are not the owner of the business although you are its day-to day operator.

Family Trust

Under the Trusts Act 2019, beneficiaries have rights and therefore money expectations in respect of the shares. This is an increasingly litigious area, involving conflicts of interests between the individual “owner”, the real owners of the business, and their advisors. It is difficult to pass businesses down through the generations. Some family members might be capable but not interested, others not so capable but interested, perhaps already in the business at a certain level, with the expectation of taking it over. Is that the best result for the business? These days there are no “happy families”. Any sale requires a very close review of these rights and perceived entitlements.

Relationships

The trust may include spouses and partners of beneficiaries. They will certainly have an influence on beneficiaries’ attitudes towards any sale. There may be blended families with past and present spouses and partners-complicating the picture still further. Agreements under the Property (Relationships) Act 1976 may assist in isolating ownership but if not, what then? Note that spouses and partners are often the powers behind the throne.

Funders

Trading or other banks are probably significant lenders to your business. They have an interest in its success. At the end of the day, they will want their money back. Shareholders (trusts) may have shareholder current accounts or even formal loans with security. They are funders as well as shareholders, reinforcing their significance.

IRD

The business has obligations to the tax authorities for PAYE, GST, and income tax. Has the business been involved in any activity that might be tax avoidance? These issues are of critical importance in any share sale.

Employees

No one is irreplaceable but some may be key to the business. For business sales (but not share sales) under Part 6A of the Employment Relations Act 1976 vulnerable employees (cleaners etc) have the right to transfer to new employer, all others have consultation rights. This can affect timing and disclosure of the transaction. What are their entitlements to leave, holiday and sick pay. Do they have any rights to redundancy payments? Don’t take employees for granted.

Major Customers and Suppliers

Will any sale affect the current relationships and how formal are they? A sale may trigger a deemed assignment under a lease. If a major proportion of revenue comes from one customer this may affect the value of the business to an external buyer, usually downwards.

Regulators

Depending on the business and its scale and whether overseas buyers are involved the clearance may be required from the Overseas Investment Commission Overseas Investment Act 2005 in respect of sensitive land and sales over $100m. Is any buyer a competitor? Will competition in the relevant market be affected? If so, competition clearance may be required from the Commerce Commission under the Commerce Act 1986. For offers of shares, the Financial Markets Conduct Act 2013 may require you to disclose financial information, although there are exceptions. These are technical areas, be aware of the need for advice.

Advisors

Do you know what your business is worth? What you think it is worth, fair value, fair market value or what a buyer is prepared to for it. A business valuation and tax advice will be needed to give you a base line.

Agent

How is the business to be sold, usually via an agent with an agency agreement. What are the range and level of services and commission expectations and clawback once agency ceases? Ideally, you will want someone who is a business advisor in the nature of a merchant banker.

You and Your Emotions

Finally, you may be glad to get rid of the stress of the business but don’t underestimate your commitment to it over the years. The sale maybe an emotional wrench. There is sometimes seller’s remorse. What are you going to do next? Golf may not be enough.