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Useful Tips & Information
Buying a business
Decide on your ownership structure early. It can be hard to change after you have purchased resulting in an inefficient tax structure and unnecessary risks to you and your assets if things do not work out.
When buying a business most issues can be dealt with during a period of "due diligence" if allowed for in the sale and purchase agreement.
However the price is often one of the first things discussed and agreed even if only informally. The problem with that is that until you have completed your due diligence investigation you do not know exactly what you are getting for your money and therefore what it is worth.
Agreement on price creates an expectation in a vendor that can be hard to change. Therefore you should either:
Goodwill may be justified by the certainty of an ongoing income stream or some advantage that you are purchasing that will almost certainly result in profits for you. On the other hand, you may just want to buy and may be able to justify a goodwill figure for reasons particular to you. Your due diligence investigation should attempt to establish whether or not the goodwill figure is justifiable.
You will be taking advice from a number of people. One of the people to see early should be your lawyer. Once the agreement is signed there is little your lawyer can do to protect your interests.
See your lawyer before you sign the sale and purchase agreement.
Entering into a lease
Be aware that in most cases you and the lease guarantors will be liable for the lease rental for the duration of the lease term whether you are occupying the premises or not. If you sell your business and assign the lease you will continue to be liable and may be called upon to meet rental payments if your purchaser is unable to do so.
Typically lawyers are involved in the acquisition of the land to be subdivided and then again at the point when the various documents needed to issue title are to be prepared. Legal issues can arise during the intervening surveying and engineering work period.
Make full use of your lawyer and keep him or her involved the whole way through the subdivision process by forwarding draft plans and consents for consideration. The surveyor will not automatically do this.
Potential problems identified early can often be addressed easily.
When a problem arises once the surveying and engineering or building work have been completed the holding costs are at their highest and options to resolve those problems may by limited.
Offering securities to the public
The Securities Act 1978 restricts offers of shares or part shares in other property to members of the public. A person wishing to offer securities to the public either needs to:
The public in this sense includes any section of the public, any individual selected randomly or even a person who makes an approach regarding the securities as the result of an advertisement seeking interest in the investment.
The following people will not be considered to be members of the public:
There are also certain exemptions from the Act. It will not apply if the terms of the offer require that only persons may subscribe: are wealthy (as specifically defined in the Act) or are experienced investors (again as specifically defined in the Act)
The penalties for breaching the Securities Act can be severe and the Courts take a strict approach to the obligations contained in the Act. It is unwise to take chances with this Act.
See your lawyer before you commit yourself to making any such offers to the public.
Have you been misled?
The Fair Trading Act 1986 is a wide reaching Act dealing with deception by people in business. It is the Act that prohibits pyramid schemes. The key provision is section 9 which reads:
"No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."
These few words run parallel to and can be used in place of the contract rules for misrepresentation in commercial negotiations. That section also runs parallel to the rules relating to imitation of a trader's goods and presenting goods as associated with another trader. The section even provides some protection against another's use of your trade marks.
If you or members of the public are misled or may (but for your own vigilance) have been misled by another trader, then the Fair Trading Act will usually apply. The person who has been misleading does not even have to have intended to deceive.
Brand protection
You have worked hard to build up a good reputation. Your business is identified by its brand, maybe its trading name. What can you do to make sure that someone else can't move into your area and take advantage of your hard work in creating that good reputation?
The first line of defence is the Fair Trading Act 1986 mentioned above. If the other trader's brand is similar to yours and misleads or is likely to mislead members of the public then you should have remedies under that Act.
For a greater level of protection and if you are wanting to build up a brand that will eventually form an important part of the sale of your business you should register your brand including name, logos, slogans and stylisations as trade marks with the New Zealand Intellectual Property Office. This will give your brands protection within New Zealand in relation to your type of goods or services.
There are limitations on what can be registered. For example, it is unfair on other traders to allow a trademark that protects a geographic place name, or words that are descriptive of the goods or services offered.
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