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Sale of Business As A Going Concern Agreement In South Africa

A “sale of business as a going concern” agreement is a type of agreement that is used when a business is being sold as an ongoing operation, rather than as a collection of assets. In South Africa, the sale of a business as a going concern is governed by the Common Law, the Companies Act and the Close Corporations Act.

The agreement typically covers the sale of the business assets, including the name of the business, inventory, equipment, and customer lists. The buyer is usually required to take over the existing lease or rental agreements, as well as any outstanding debts and liabilities. The seller is usually required to provide assistance to the buyer during the transition period, to ensure a smooth transfer of the business.

It’s important to note that, in South Africa, the sale of a business as a going concern is typically considered a taxable event, and the buyer may be required to pay VAT on the purchase price, unless the business qualifies for an exception.

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The agreement should also include provisions for the confidentiality and non-compete agreements. The confidentiality agreements ensure that the buyer and seller do not disclose any confidential information about the business to third parties. The non-compete agreements prevent the seller from competing with the buyer, after the sale of the business.

Additionally, the agreement should include representations and warranties of the seller, such as the legal status of the company and the legality of the business’s operations. This can include details such as the licenses and permits held by the business, the status of any litigation or disputes, and any potential liabilities or obligations that the buyer should be aware of. The agreement may also include representations and warranties from the buyer, such as their ability to finance the purchase and any contingencies that must be met before the sale can be completed.

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Another important aspect of a sale of business as a going concern agreement in South Africa is the due diligence process. This process should be conducted by the buyer prior to the sale, to ensure that the business is in good condition and that there are no undisclosed liabilities or risks. The due diligence process may include reviewing financial statements, contracts, and other legal documents, as well as conducting inspections of the property and equipment.

In conclusion, the sale of a business as a going concern agreement in South Africa is a complex process that requires careful planning and execution. It’s important for both the buyer and the seller to seek legal advice and to ensure that all aspects of the agreement are clearly outlined and legally enforceable. A well-crafted agreement can help to ensure a smooth transition of the business and protect the interests of both parties.

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It is also important to note that a sale of business as a going concern agreement in South Africa should be reviewed by a qualified lawyer, and a due diligence process should be conducted to ensure that the business is in good condition and that there are no undisclosed liabilities or risks. The agreement should be registered with the Companies and Intellectual Property Commission (CIPC) to ensure its legal enforceability.

 

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