When you buy a small business, you need to know exactly what it is you're paying for and what it's worth. This information is disclosed in the Section 52 Statement.
A Section 52 Statement, also known as a Statement by a Vendor of a Small Business, is a document that the vendor must provide to the purchaser in the sale of a small business. It discloses all of the relevant financial information about the business.
Anyone selling a small business must provide the purchaser with a Section 52 Statement. If you fail to do so, then the purchaser has the right to void the contract within three months of signing it, provided that they have not already taken possession of the business.
With that in mind, here are two Section 52 examples with some common mistakes that you'll want to avoid.
What happens when there is no Section 52 Statement?
"The purchaser wants the contract cancelled because there was no Section 52."
"My partner and I recently sold our business. We didn't know we had to supply a Section 52 and failed to prepare the statement, although I believe all the facts about our trading were supplied.
The purchaser signed the contract and took possession of the business and commenced trading six months ago. The business was sold under vendor terms over four years, for a total of $100,000. The purchaser paid two payments and refused to continue payments as per the contract. The purchaser wants the contract cancelled because there was no Section 52. She is also that demanding her monies be refunded.
The purchaser is still in possession of the business and all its assets, and they are still trading. We are attempting to resolve the dispute, but the purchaser is stalling mediation. I know we didn't provide the Section 52, but the purchaser has now stolen the entire business and wants to be repaid. What can we do?"
What happens when the Section 52 Statement is inaccurate?
"Not only was the business not as profitable as the Section 52 Statement made it out to be, but their plant and equipment were not as valuable as they claimed."
"I recently purchased a business, and now I need to cancel the contract. The vendor provided a Section 52 Statement, and the business seemed to be doing very well. However, upon performing our due diligence, we found that the statement they provided was inaccurate.
Not only was the business not as profitable as the Section 52 Statement made it out to be, but their plant and equipment were not as valuable as they claimed. Much of their equipment was outdated or in poor condition.
It has been less than three months since I signed the contract and I wish to cancel it. However, the vendor is claiming that their Section 52 Statement is accurate and that I have no right to cancel the contract. I have already made the first payment and they are refusing to refund me. What are my options?"
Get all the details right when you buy or sell a business
It's essential that you get expert legal advice when you buy or sell a business. Getting the details rights can help you avoid the problems that others have experienced in these Section 52 examples.
Buying or selling a business is one of the largest financial agreements that you can make, so you must ensure that your interests are protected.
The talented business lawyers at Rose Lawyers can guide you through every step of buying or selling a business. We will ensure that all of the necessary documents have been provided and are correct.
For expert advice when you buy or sell a business, call Rose Lawyers on 03 9878 5222.