Selling Your Business as a Going Concern

selling your businessSelling a Business as a going concern does not have a set definition but rather it is determined according to a factual test. A business is therefore sold as a going concern when after it is sold it remains largely the same as it was before it was sold. There is no definitive factor to determine this and as such must be determined on a case by case basis.

Selling a business as a going concern does not mean the entire business needs to be sold. It is sufficient to say that the seller can also sell a function of the business. The function does not need to be a core function either. This wide application is provided to cater for businesses who make use of outsourcing certain functions (please see the blog explaining the effects of selling a business as a going concern on outsourcing)

There are several implications and benefits to selling your business in such a manner.

Firstly, selling a business as a going concern means that all employment contracts or contracts outsourcing certain functions of the business will be transferred under the same conditions from the previous employer/owner to the new employer/owner. This is dealt with in section 197 of the Labour Relations Act. In order to facilitate this the seller and the buyer must determine all matters of remuneration of the employees of the business and must sign on who must pay and when such payment must be made.

Secondly, selling your business as a going concern provides certain tax benefits. Provided that both the Seller and the buyer are VAT vendors such a transaction is considered as “zero-rated”. This will only occur if both parties are VAT vendors. What this means is the purchaser will not have to pay VAT on the purchase which eliminates the process and time periods of claiming back VAT and relieving the purchasers cash flow. The only 2 requirements for this is that both parties must a agree on the business being sold as a going concern and that both parties are VAT vendors.

For more information on selling your business as a going concern, contact Du Toit’s Attorneys on 012 742 0100 or 012 643 1882. Alternatively, you can send an email to: johan@dutoitsattorneys.co.za or hanja@dutoitsattorneys.co.za

Sources:

Overall, A The implications of transferring a business as a going concern, Accessed at: http://www.ee.co.za/article/the-implications-of-transferring-a-business-as-a-going-concern.html (Accessed on: 04/11/2016)

Holdstock, CM VAT: Selling your Business as a going concern, Accessed at: http://www.thesait.org.za/news/162926/VAT-Selling-your-business-as-a-going-concern.htm (Accessed on: 04/11/2016)