BUYING
A BUSINESS- PITFALLS AND PLANNING
When
you are considering buying an existing business, you should look carefully
through the books, evaluate the assets and liablities and decide which parts of
the business are of interest. A Sale and Purchase agreement will be drawn
up and when both parties have agreed to the terms and conditions, the purchase
will go ahead. A question that is often asked is "Should I buy
the shares in the company or buy selected assets and liabilities?"
Your
decision as to what to buy will depend on whether the vendor wants to sell
the company lock, stock and barrell or is happy to separate the business from
the company. If you buy the shares of an existing company you are buying
not just the situation as you see it today, but the company's history as well.
In the event of an IRD investigation into the company's history, you will be
responsible for any past tax shortfalls uncovered. A scary
thought!!!
What
can you do? Traditionally indemnity clauses are used to give
the purchaser some protection and a means of recouping costs if things come
unglued. In an interesting case, the notion of a tax indemnity was
tested. The judge decided that the indemnity did cover a variety of
costs, including the legal costs of dealing with a tax assessment covering
transactions before the purschase. A tax indemnity clause in a Sale
and Purchase Agreement would require the vendor to cover the purchaser in the
event of a tax investigation. The cover could include some or all of:
tax payable for prior years, penalties and interest charged, and accounting and
legal costs associated with an investigation.
Indemnity
clauses are impossible to enforce when the seller disappears or ends up broke.
You will predictably achieve a better overall result by examining the assets and
liablities of the business and selecting the parts that you want rather than
taking on the company. Leave the vendor with any problems and
liabilities.
GST-
CHANGING YOUR TAXABLE PERIOD
A
taxable period is the length of time covered by a GST return.
You
have the option of filing your GST returns on a one, two or six monthly basis,
unless your annual turnover or expected annual turnover is: