Business For Sale | Terry Gorry & Co. Solicitors

Buying and Selling a Business in Ireland-Key Decisions and Considerations

If you are thinking about buying or selling a business in Ireland the principal decision you will have to make at the outset is how you will structure the transaction.

There is essentially two methods of carrying out a transaction-

1) A share purchase

2) A purchase of the assets and liabilities of the business.

(This part of our Irish business law series which deals with some of the many issues surrounding small business in Ireland today.)

The most popular method is by way of share purchase but you do need to carefully weight up the pros and cons with your solicitor and accountant.

Purchase of assets

This method of buying a business has the advantage of allowing you to choose which assets you will buy and which liabilities you simply will not take on.

It does run the risk though of being challenged subsequently by a creditor who has not been paid and whose liability you have not taken on as part of your purchase.

Comparison of the two methods

Asset Purchase

As the buyer you will choose which assets and which liabilities you are taking on.

However it is difficult to get your hands on any tax losses of the target company and you many end up paying stamp duty of up to 9% depending on what assets are included in the deal.

Share Purchase

With a share purchase you will only pay stamp duty at 1%, regardless of the value of the target business.

The employees of the company will be taken on as a matter of law as part of the transaction; you may however be able to benefit from any tax losses which pass from the target company.

All assets and liabilities pass as part of the share transaction so the potential for liabilities rising up to bite you down the road is high.

Due diligence essential

It is absolutely vital that proper due diligence is carried out before buying a company or business.

Depending on the size and complexity of the target business it may be necessary to carry out due diligence under the following heads (not an exhaustive list)-

Insurance
Legal
Accounting
Environmental
Statutory obligations (CRO obligations included)
Title

Other critical issues to be dealt with include

Warranties (statements given by the vendor to the buyer in relation to the business being acquired).

Warranties would normally cover matters such as the target companies accounts, pending litigation, taxation, employees, assets, liabilities and essentially all aspects of the companies affairs.

Disclosure letter ( a letter from the vendor to the purchaser which sets out where the target company has any issues in relation to the general warranties already provided).

This might include any problems the target company/business has in relation to employees, title to property, insurance, banking facilities and any number of other areas where the actual position on the ground deviates from the warranties given in the agreement to sell.

Business for sale Ireland

Filed Under: Business For Sale Tagged With: Business For Sale

Small Business Plan-How To Write One

A good small business plan is critical to the success of any enterprise. Whether it is a formal document or written on the back of a cigarette packet it is an essential first step on the road to building your small business.

Even though we in Ireland are in the midst of the worst economic situation that has ever prevailed many people are still intent on setting up their own small business.
And the first critical step in that process is to start with a small business plan.

This can take many forms but most people are agreed that there are a few critical areas which must be addressed .

1. Overall tone of your small business plan

You need to be clear and concise with your plan with clear objectives/goals and a clear strategy. It should be factual, not aspirational, and easy on the eye with plenty of white space.

2. Summary

The summary should be able to convey in a few sentences your strategy and goals and highlights the positive parts of your plan. You need to think of the elevator pitch ie can you describe your plan succinctly to a stranger if you met him/her in a lift and were travelling from the 5th floor to the 1st.

3. Description of the business

This part of your small business plan should set out clearly the industry, type of business, any company history, the legal structure to be employed, any trading history and your vision for the future.
You will need to describe the USP(unique selling proposition of your business) and how you will grow your product/service with realistic achievable goals.

4. Marketing and Sales

You will need to set out how you will market your business and obtain sales, your target market and how you will handle competition if and when the squeeze is put on your business. You will need to show some solid market research in this section and demonstrate that you know the industry that you will be competing in.

5. Your People

This part of your small business plan will deal with your people, your key personnel and will include your professional advisors such as solicitor and accountant. You will also outline any recruitment plans you have and set out your salary structure which will show also that you are planning for growth.

6. Your operations

This section will essentially set out how you operate your business and include the location of your business, any production facilities if appropriate and information technology systems which should be robust enough to accommodate your future growth plans.

7. The Financials

This section will include your realistic achievable forecasts, both of cash flow and profitability. It will also be critical to outline any capital requirements you will have into the future and demonstrate that you have actually planned for the growth that you forecast elsewhere in your small business plan.

These are the essential parts of a decent small business plan and can obviously be adapted easily depending on your particular circumstances and individual requirements. A good small business plan should be an asset to you when you walk into any meeting with a financier/investor/bank and should reflect your professionalism and overall business approach.

Make sure that it reflects well on you and your company or fledgling enterprise.

Filed Under: Business For Sale Tagged With: business plan, business plan ireland, Small Business Plan

Franchising-Negotiating a Franchise Agreement

Franchising can be a great way to start your own business.

And the failure rate for franchises is much less than for non franchise start-ups.

But you still need to do your homework and ask and be satisfied about many questions which you might not think about in your enthusiasm to start your own business.

The franchise agreement from a major franchisor will generally be on a take it or leave it basis.

That is the franchise agreement will not be negotiatable as the franchisor can’t afford to negotiate individual franchise agreements with each franchisee.

But that does not mean that you should not ask the right questions and satisfy yourself that the situation that arises when there is a dispute or the franchisee is incapacitated or dies is provided for.

1. What law governs the franchise agreement?

Many successful franchises in Ireland are not Irish companies………..the law applicable for an international franchise may well be another jurisdiction.

2. What happens if the franchisee dies?

Is there provision in the franchise agreement for the franchisor to provide staff to run the business to keep the show on the road?

3. Is there a renewal option when the franchise agreement ends?

If there is are you happy to commit to sign a franchise agreement in say, 10 years time, having no opportunity to see the new agreement? What are the terms?

4. Can you sell the business? Can the franchisor veto your purchaser?

5. When the franchise agreement is terminated is there a non compete clause? For how long?

6. If the franchise agreement is terminated and the premises is yours, how much will it cost to debrand?

7. Is the training and system manual up to date? When was it last updated?

8. Is there an advertising fee payable? Can it be justified? Is there marketing spend on the brand?

9. Is there a management services fee? How is it calculated?

10. Does the franchisee have to inform the franchisor of any improvements he has made to the system?

11. Is the franchisor the owner of the trademark? And if not will he provide a licence to the franchisee for the use of any trademarks and intellectual property?

12. Who will own the premises? Will the franchisor provide any advice in relation to location and premises? Is this provided for in the franchise agreement?

13. How long has the franchisor been carrying on business? How many company owned outlets?

14. If the franchisor is supplying goods is there a credit limit? Will a minimum stock of products be imposed? Is a vehicle required? Will it have to be branded?

15. What books and records will the franchisee have to supply to franchisor?

16. Will a confidentiality agreement be required?

17. Who will pay for initial and ongoing training?

18. Is there a territory? Is it exclusive? Is it stipulated in the franchise agreement?

19. How long will the franchise agreement last? Is it compliant with competition law requirements?

20. Is training provided for staff? Is it ongoing?

21. Is more than 10% of the initial fee for use of the name and trademark? Can this be justified?

22. What initial stock will be needed? Will the franchisee have to purchase equipment, stationery from the franchisor?

23. What ongoing obligations has the franchisor as per the franchise agreemtent in relation to problem solving, management, finance and marketing, provision of staff in an emergency, research and development and maintaining and improving the manual?

24. Will franchisee be required to advertise locally?

25. Does the franchisor have the right to communicate with the franchisee’s customers?

26. Has the franchisor the legal right to purchase the franchise from the franchisee? On what terms? Is that in the franchise agreement?

27. Is the franchisor entitled to appoint a manager if the franchisee dies or is incapacitated?

28. Who is entitled to terminate the franchise agreement? On what terms? What events will bring this about?

29. What will happen when a dispute arises? Is arbitration provided for in the franchise agreement? Litigation?

30. Does the franchisee have to enter into any restrictive covenants in the franchise agreement?

When looking at a franchise agreement with a view to buying either a new franchise or an existing franchise, a close perusal of the franchise agreement with these questions foremost in your mind is a good starting point.

But only a starting point. You will need to engage a solicitor before signing any franchise agreement but these questions may assist you in deciding whether to go that far or not.

Filed Under: Business For Sale Tagged With: franchise agreement, franchise contract, Franchising

Partnership Law in Ireland

The need for a written partnership agreement in any partnership is crucial.

Because if you do not have one, then the Partnership act 1890 will govern your relations with your partner.
Partnerships are an important part of business life in Ireland for a number of reasons.

1) any time 2 or more people come together to carry on business and do not form a company the law assumes they are in partnership.They are then subject to partnership law which dates back to the Partnership Act of 1890.

2) Professionals such as doctors,lawyers,dentists,vets,accountants are not allowed to form companies.

3) There are advantages over forming a company from the point of view of tax, accounting and disclosure requirements.

Unlike a company a partnership is not a separate legal identity which means that partners have unlimited liability, unlike directors or shareholders in companies.

And partnerships do not have to go through any registration process to be formed.

The downside is that each partner is liable for the losses of his co-partner in carrying on the partnership business, even where the other partner has defrauded clients of the business.

Definition of Partnership

Partnership Act 1890 defines a partnership and essentially states that where 2 or more people carry on business with a common view of profit, then a partnership exists.

A written partnership agreement is not necessary.

And where 2 or more companies come together to carry on business to make a profit then unless they have set up a special purpose joint venture company a partnership will be deemed to exist.

However it is important to note that Co-ownership of property alone does not mean that a partnership exists; there must be a sharing of any profits between partners.
Generally the maximum number of partners allowed is 20;however there are exceptions made for solicitors and accountants.

Why is it important to have a written partnership agreement?

Because if there is not either an implied or express agreement the partnership will be considered in the eyes of the law a partnership at will and will be governed by an act from 1890….which in most cases is wholly inappropriate for modern business.

For example without a written partnership agreement the 1890 Partnership act will mean that

1)there is no right to expel a partner

2)any partner may dissolve the partnership

3)if a partner dies, the firm will automatically dissolve

4)there is no power to retire under the Partnership act.

These are pretty crucial reasons for partners to set down their agreement and understanding in a written partnership agreement.

Partners rights under the 1890 act

1) every partner may take part in the management of the business so if this in not desired then a written agreement should reflect the wishes of the partners.

2) a simple majority of partners is all that is required to make a decision.Again if this is not desired then a written agreement is a must.

However this is tempered by the requirements that

a)all the partners must exercise their powers for the benefit of the partnership as a whole

b)to change the partnership business there must be unanimity

c)no partner may be introduced without the consent of all the partners

d)a partner may not be expelled by a majority

Written Partnership agreement

It is pretty clear that having a written partnership agreement is crucial to the smooth running of the partnership and to ensure that the wishes of the partners at the outset are carried out.

The Partnership act 1890 does not prevent a former partner from competing with the firm after he leaves and for this reason it is common for modern partnership agreements to have a non compete agreement…generally for a maximum of 2 years.

Financial rights of partners

The default position from the 1890 act is that all partners are entitled to share equally in the profits and capital of the partnership and must contribute equally to the losses.This means that even if a partner does not contribute capital in the same proportions as the other partners he is still entitled to share in the profits equally.

Remuneration of Partners

The Partnership act 1890 states that no partner is entitled to remuneration for acting in the partnership business.Clearly a written agreement is a necessity and should also set out the provisions for the drawings of partners.

Partnership Property

It is very important to decide at the outset which is partnership property and which belongs to individual partners. It is important to note that the 1890 act presumes that property used in the partnership is partnership property and that property bought with partnership funds is partnership property.
So it should be clarified from the start who owns what……and what is partnership property and what is not.

Liability of partners to third parties

Partners are liable for the debts and obligations of the partnership without limitation.And where a creditor can not get money due to him from the partnership he is entitled to get his money from the partners personally.Generally a partner acting within the scope of his authority binds the whole partnership legally.

However he must act as a partner and it must be within the ordinary course of business of the partnership.If a partner can wiggle his way out of binding his firm to an outsider then he himself will be made personally liable.

Dissolution of Partnership

Dissolution of a partnership can occur by
1) automatically eg on the death of a partner

2 )by notice ie any partner can just dissolve the partnership by giving notice

3) the court can dissolve a partnership where it decides that

a) a partner has carried on in a way that is damaging to the business

b) where a partner commits a breach of the agreement consistently

c) whenever the court decides that is just and reasonable to dissolve it.

No right to expel a partner

Under the Partnership act 1890 there is no right to expel a partner,no matter how negligent or unprofessional he is, so this is another important reason to have a written partnership agreement drawn up.

Dissolution of a partnership

In the absence of a written agreement a partnership will be dissolved on the bankruptcy or death of one of the partners.This means that any partner can dissolve the partnership by giving notice to their fellow partners if there is no written agreement.

Illegality

A partnership is dissolved automatically if is involved in illegality.You may think ‘well that will not affect me’ but if a professional must,by law,have a practicing certificate then if he/she fails to renew their practicing certificate then the partnership is automatically dissolved.

Consequences of dissolution of Partnership

Where a firm goes into general dissolution the assets of the partnership will be sold to pay the debts of the partnership.

It is important to be aware that if there is insufficient funds to pay creditors then in the absence of an agreement to the contrary each partner will have to contribute equally to those losses…..regardless of the contributions of capital by each partner at the outset.

In order for a partner to protect himself after dissolution he must give notice to all existing customers to avoid any liability after the dissolution.It is vital that a former partner notifies customers of the partnership that he is no longer a partner or he could be held liable under the Partnership act 1890 for any obligations incurred by the partnership after his departure.

Any partnership agreement must provide for the share of the departing partner to be purchased by the continuing partners and must provide for what will occur on the death of a partner.

As you can see there are many good reasons to have a written partnership agreement drafted if you are going into a partnership.If you do not then the Partnership Act 1890 will govern your relationship with your partners and as you can see it is completely inappropriate for modern commercial activity.

You should consult a solicitor or other suitably qualified professional to have your partnership agreement drafted and which will provide for all of the issues outlined above.

Filed Under: Business For Sale Tagged With: dissolution of partnership, partnership, partnership agreement, Partnership Law