Selling your business? Why legal advice is a must before signing an agreement

12 Feb 2025

Selling a business is a major decision for any business owner. While it may be tempting to move quickly once you find a buyer, failing to get proper legal advice before you sign the agreement can often lead to costly mistakes.

We understand that sometimes this is easier said than done. Often, there are external factors which mean a quick sale is desirable. For example, pressures like creditor demands, dire financial circumstances, fear of losing the deal, may encourage an owner to sign a contract without delay.

Notwithstanding the above, below are a few reasons why we recommend always engaging a lawyer before signing the dotted line.

Saving money in the long term

One of the biggest objections to engaging a lawyer early is the perception this will add to your costs. Given this, it may be ironic for a law firm to suggest engaging it can actually save someone money.

However, speaking from experience, a poorly drafted contract can expose a party to unexpected liabilities, disputes, or financial losses. We see contracts with terms that don’t make sense, or which just fail to deal with everything that is required in order for a smooth sale. These issues often lead to a much higher legal bill at the end which could have been avoided if the terms of the contract were reviewed prior to signing.

Proper tailored legal advice aims to ensure the terms are drafted so your obligations are clear, and your interests are protected to ensure future costly headaches are avoided.

Ensuring your legal obligations are met

With the rise in AI tools such as ChatGPT, we are increasingly seeing a “DIY” approach to drafting contracts. Most of the time, whilst ChatGPT and other similar tools have their place and are amazing tools, these contracts often miss the mark by far due to the data that is used to train these systems. Outputs are often highly “US” themed and not suitable for the New Zealand market. Often contracts drafted with AI will contain non relevant legislation or common law doctrines which have no relevance in New Zealand.

Selling a business in New Zealand involves jurisdictional specific legal obligations, including employee entitlements (for example Vulnerable Workers), tax considerations (such as GST on the sale), and industry specific regulations.

Structure the sale for the best outcome for you

Even before putting pen to paper to draft a sale agreement, many matters need to be considered. E.g. - Should you sell shares or assets? How will payment be structured? Will you stay on as a consultant? These decisions can significantly impact your tax position, legal position, and long term financial return. A lawyer, working alongside your accountant, can assist to structure the deal in the most advantageous way both financially and legally.

Protection against future claims

While no lawyer can prevent someone attempting a claim, a well drafted contract will seek to limit such risks and will provide certainty around your obligations.

Final Thoughts

Selling a business involves a lot more than trying to get the best price or a quick sale. It is a legal and financial transaction with long term implications. Engaging a lawyer early and before you sign affords an opportunity to help safeguard your interests and reduce risk. The sale of a business often marks the end of a chapter, and engaging a lawyer before you are committed to a contract can help ensure the end of that chapter is a positive one.