[Question] Business Sale - Services Transfers

[AmithS]

Hello Everyone,

I was wondering when selling a business complete with the cc, does one need to transfer items like credit card machines, armed reaction, electricity, etc...

The reason I ask is that the accounts\contracts are in the name of the cc and the new owner would now be the owner of the cc. However the current owners ID & details where provided as the owners details when the accounts\contracts were signed!

Anyone has experience with this situation?

Thanks, any advice welcome

[daveob]

From what I know, the MAJOR problem with this route is that the surities that the original owner / member signed, will still be in effect after the change in ownership.

When you, as the member of the CC, sign a personal surity, you sign it until cancelled by the holder - it is highly unlikely that you sign it as the member of xyz cc and valid only for the duration of the term of your ownership of the cc. They will still be in effect after change of ownership.

Common practice seem to be that the new 'owner' opens their own company, and buys the assets / goodwill, etc from the old cc. That way, once the old cc has sold everything and stops trading and settles all it's accounts, it can legally close down and all surities become null and void as the cc, not trading, has no debts remaining and cannot create any new debts.

[AmithS]

Hi daveob,

Thanks for the advice.

Normally when the entire cc is sold with the business, the sale is as a going concern and no VAT is paid.

How would the tax work if you had to keep the cc?

Also if you keep the cc, all contracts like credit card machines, armed reaction, etc... which run for 2 - 3 years will still have to be paid for and if you cancel them to close down the cc you have to pay a penalty?

[daveob]

Hi daveob,

Thanks for the advice.

Normally when the entire cc is sold with the business, the sale is as a going concern and no VAT is paid.

How would the tax work if you had to keep the cc?

Also if you keep the cc, all contracts like credit card machines, armed reaction, etc... which run for 2 - 3 years will still have to be paid for and if you cancel them to close down the cc you have to pay a penalty?

Not sure about the VAT.

Talk to the service providers. I think that if you explain the situation and the fact that you have a new customer to replace your termination of services, they would most likely waive any cancellation penalty clauses - but get it in writing.

Last thing you want is to change ownership, and years down the line have the new owners creditors come knocking on your door 'cos he bailed and you signed the surity.

[BusFact]

I was wondering when selling a business complete with the cc, does one need to transfer items like credit card machines, armed reaction, electricity, etc...

The reason I ask is that the accounts\contracts are in the name of the cc and the new owner would now be the owner of the cc. However the current owners ID & details where provided as the owners details when the accounts\contracts were signed!

No there is no need to make any changes ... usually. The contracts should be with the cc and have no affect on who owns the cc.

Two issues that I am aware of are:
1) The dreaded surety as mentioned by daveob. The seller must be super careful here as if he has signed sureties in his personal capacity, they will still exist even after the sale.
2) Some contracts have a clause that requires the cc to notify the supplier in the event of any change in shareholding or management. IMO this is less of an issue and ignorance could be claimed down the line.

The ID's are usually just there to make sure that the supplier is dealing with someone authorised to sign on behalf of the cc. The CC should simply carry on operating as normal after any sale.

The buyer also faces some risks with this method. What happens if an unknown liability suddenly crops up a year down the line? It becomes the cc's responsability and its irrelevant if the liability was incurred when the previous owners were in charge.

Buying only the business and not the cc, gives protection from some of the issues above, but it does create a lot of admin in terms of new accounts, new vat numbers, new contracts .....

[CLIVE-TRIANGLE]

Great advice from Busfact.

The purchase of member's interest in a cc has no bearing on VAT, but it does have capital gains issues for for the seller.

Normally the price for members interest is much lower, because you are buying the liabilities along with the assets. However as BusFact has pointed out, there is often an issue with undisclosed liabilities. To circumvent that the seller has to supply warranties / indemnities to the effect that undisclosed liabilities are for the sellers account. However this only has value if the seller has "funds", because such an agreement is not binding on anybody but the buyer and seller. It is also not easily enforceable say two years down the line. It does however work when there is a deposit and payment arrangement, because payment can be withheld, or made to the creditor instead of the seller in lieu.

The alternative of buying the business of the cc as a going concern can have negative implications too, firstly the price will almost always be higher because there are only assets and goodwill, secondly in businesses like construction and fabrication, new vendor numbers are required which sometimes never even materialize.

It is not an easy decision; quite often the seller has already decided how he wants to sell and that really takes the decision away from the buyer.

[AmithS]

If the business is sold out of the cc (assets and goodwill) the seller would then have to pay VAT on the transaction? Correct

[CLIVE-TRIANGLE]

Not if sold as a going concern, then it is VAT at 0%.

[flaker]

if a sale is between two vat registered entities then the sale is zero rated for vat purposes & this would be a clause in the sale agreement. i would NEVER advise a purchase of the CC, irrespective of the schlep involved in forming a new CC and applying for a vat number. This however does not stop the signing of an agreement as the buyer in the agreement would represent a CC to be formed and undertake in that agreement to register that CC for vat.

[AmithS]

Thanks for the info flaker, much appreciated.

One more thing then, if the business is being sold out of the cc, would the seller then be the cc or be the owner\person?

[Dave A]

One more thing then, if the business is being sold out of the cc, would the seller then be the cc or be the owner\person?

The seller would be the cc.