Sale of a Business as a Going Concern in South Africa Explained

In South Africa, the sale of a business as a going concern is a common transaction that involves the transfer of an existing business, including all its assets and liabilities, from one owner to another. In this article, we will provide you with a detailed overview of the sale of a business as a going concern, including the benefits and risks of this type of transaction, as well as the legal requirements and procedures involved.

What is a Sale of Business as a Going Concern?

A sale of business as a going concern refers to the sale of an existing business, including its assets, liabilities, goodwill and ongoing operations, as a single package.

In this type of transaction, the business continues to operate without interruption and the new owner takes over all aspects of the business, including its contracts, employees and customers. The sale of a business as a going concern is often used when the owner of a business wishes to retire or move on to other ventures and wants to sell the business as a complete entity rather than liquidating its assets.

Benefits and Risks of a Sale of Business as a Going Concern

There are several benefits to a sale of business as a going concern, including:

• Continuity of the business: By selling the business as a going concern, the new owner can take over the business without any interruption to its operations. This can help to maintain customer relationships and preserve the business's reputation.

• Transfer of contracts: A sale of business as a going concern typically involves the transfer of existing contracts, including leases, supplier agreements and customer contracts, which can provide the new owner with a ready-made customer base and supplier network.

• Easier financing: Because the business is being sold as a going concern, it may be easier for the new owner to obtain financing, as lenders may be more willing to provide funding for an established business with a proven track record.

However, there are also risks associated with a sale of business as a going concern, including:

• Hidden liabilities: The new owner may inherit liabilities associated with the business, such as outstanding debts, legal disputes or environmental liabilities.

• Employee issues: The new owner may be required to take over existing employees, and may be liable for any claims related to employee benefits, wages or disputes.

• Legal compliance: The new owner will be required to comply with all legal requirements associated with the business, including licensing, zoning and environmental regulations.

Legal Requirements and Procedures for a Sale of Business as a Going Concern

In South Africa, a sale of business as a going concern is subject to certain legal requirements and procedures, including:

• Due diligence: Before entering into a sale of business as a going concern, the buyer should conduct due diligence to ensure that they understand all aspects of the business, including its financial performance, legal compliance and potential liabilities.

• Agreement of sale: The sale of business as a going concern must be documented in an agreement of sale, which outlines the terms and conditions of the transaction, including the purchase price, payment terms and transfer of assets and liabilities.

• Tax implications: The sale of business as a going concern may be subject to value-added tax (VAT) or capital gains tax (CGT), depending on the specific circumstances of the transaction.

• Regulatory approval: In some cases, regulatory approval may be required before a sale of business as a going concern can be completed, particularly if the business operates in a regulated industry.

Conclusion

A sale of business as a going concern can provide a range of benefits for both the seller and the buyer, including continuity of the business, transfer of contracts, and easier financing. However, it is important to understand the risks associated with this type of transaction, including hidden liabilities, employee issues and legal compliance requirements. Before entering into a sale of business as a going concern, it is important to conduct due diligence, document the transaction in an agreement of sale, and ensure compliance with any tax or regulatory requirements.

Overall, the sale of a business as a going concern can be a complex transaction that requires careful planning and execution. If you are considering buying or selling a business as a going concern, it is recommended that you seek the advice of a qualified legal and financial professional to ensure that the transaction is conducted in a legally compliant and financially sound manner. With proper planning and execution, the sale of a business as a going concern can be a successful and rewarding experience for all parties involved.

If you would like to find out more, contact our offices today to schedule a consultation with one of our specialist corporate law attorneys.