Company Sold as a Going Concern – What Does This Mean?

Definition of “Company Sold as a Going Concern”

Selling a company as a ‘going concern’ means the business is transferred to a new owner but without major changes. This term refers to a company that is able to keep trading for at least twelve months.

All assets, liabilities and contracts associated with the business are included in the sale. Employees may also be transferred, depending on the situation.

One benefit of this sale is stability for customers, suppliers and employees in comparison to other types of sales. The new owner can benefit from the existing goodwill, reputation and customer base.

If you’re buying or selling a business as a going concern, it’s important to get professional advice. You need to consider the legal requirements and potential benefits. Ensure that you have everything in order!

Importance of “Going Concern” in Business Sales

When a business is sold as a ‘going concern’, it means the purchaser will take it ‘as is’. This includes its assets, liabilities and employees. This concept is key in business sales as it guarantees buyers they’re getting an active company with customers and revenue.

To get this status, the business must show it has the resources to keep going for at least 12 months. Plus, all financial statements must show it can meet all its obligations. If not, extra disclosures or qualifications may be needed before the sale is complete.

The going concern principle applies to new and existing businesses. E.g. if a buyer buys an existing business without meeting these standards, they could face closure or legal action from creditors who are owed money by the previous owner.

In the past, companies such as Blockbuster didn’t meet going concern requirements and analysts warned its cash balance was running out. This eventually caused them to file for bankruptcy.

So, it’s vital for buyers and sellers to understand what ‘going concern’ means. Ignoring this may cause problems later.

Factors that Determine Whether a Business is a “Going Concern”

When a business is sold as a “going concern”, it means it will keep operating without interruption. Determining if a company qualifies involves several factors, like its financial stability, current management, market demand for its products, and potential legal/regulatory issues.

The financial stability is key. The buyer wants evidence of profitability, well-maintained assets, and controlled debts. Management is equally important; buyers will want to know if existing management is capable and if operations can be optimized.

Market demand for products and services matters too. If there’s no clear demand, buyers may hesitate. Potential legal/regulatory oversight must be assessed.

Many people assume they’ll get more money from selling their business as a “going concern” than liquidating it. This pub owner found out differently. Without willing bidders, he had to settle for lower margins than expected. His problems? Outdated marketing and falling profits compared to competitors. Why start from scratch when you can buy someone else’s problems and call them advantages?

Advantages of Buying a Company Sold as a Going Concern

Buying a company as a ‘going concern’ means operations continue without disruption or major changes. This offers advantages to the buyer.

Advantages of Buying a Going Concern:

• An existing customer base to maintain revenue.
• Pre-existing processes and procedures.
• Trained/experienced staff.
• Lower start-up time and costs.
• Continuity of contracts with suppliers, customers and employees.

But be sure to conduct due diligence when buying, or you might face risks or liabilities. Plus, trusting a lawyer to explain the legal bits is even riskier!

Legal and Financial Aspects of Buying a Going Concern

When you purchase a business as a going concern, its assets and liabilities get transferred to you without any disruption to daily activities. Here, let’s dive into the legal and financial implications of buying a going concern.

Legal and Financial Considerations

Take a look at the legal and financial aspects you must consider when purchasing a going concern:

Other Details

Apart from the above-mentioned points, it’s important to research any risks associated with the going concern. So, check out things like environmental issues, employee benefits, tax obligations, lease agreements, legal compliance records and regulatory approvals.

Suggestions

For a successful purchase of a going concern, try these tips:

1. Get expert advice or hire professionals for any complicated legal procedures.
2. Uncover any hidden liabilities beyond disclosed balances or known creditor claims.
3. Sign an agreement between both parties prior to closing.
4. Don’t rely only on the seller’s information; verify everything yourself.

The Role of Professionals in a Going Concern Sale

A Going Concern Sale involves profiting from a business. Lawyers, accountants, brokers, and advisors are essential for a successful transaction. Marketing materials are made by the broker to attract buyers. After the buyer receives confidential information, they evaluate the finances and operations of the business. Buyers then make an offer based on their valuation.

Diligence is done to verify accuracy and check for hidden liabilities. If everything is up to par, the buyer may purchase. In 2015, Masters was sold as a going concern to Home Consortium for $700 million AUD. Professions included accountants, lawyers, brokers, and advisors.

Conclusion: The company’s concern still thrives. Takeaway: Read the fine print.

Conclusion and Key Takeaways

When a company is sold as a going concern, it means the buyer acquires all assets and liabilities. This includes ownership of facilities, equipment, customer lists, brand names, intellectual property rights, existing employees and contracts with suppliers and service providers. Here are five key takeaways:

• The buyer is responsible for debts and obligations.
• Employment contracts transfer to the new owner.
• Customer services and products remain unchanged.
• Legal disputes and regulatory issues are inherited.
• Contracts with suppliers and service providers transfer.

Employees should be protected under transfer of undertakings regulations, preserving terms and conditions of employment. In summary, when a company is sold as a going concern, everything related to the operation transfers to the new owner. Employees can relax, as their jobs have reasonable safeguarding. All legal processes are observed during the transaction, so service delivery and contracts remain normal.