LEGAL CONTRACTS

LEGAL CONTRACTS

It is essential that when entering into a legal contract you are represented by an attorney who is competent in this field of law.  Contracts are highly complicated documents and unless they are drawn correctly the seller, for instance, may lose his entire purchase price unless safeguards are built in to ensure payment and the necessary security is put in place to ensure that in the event of the purchaser defaulting on his obligations to pay there will be the necessary provisions to ensure that payment is made or alternatively that the security provided can be implemented.

The sale agreement must be carefully drawn as there are all sorts of implications arising out of the sale which would affect the amount payable on Value Added Tax, Capital Gains Tax and other forms of tax which could impute a huge liability on the seller which would then obviously adversely affect the profit from the sale. 

For instance, if the seller does not sell the business as a going concern the exemption contained in Section 11(1)(e) of the Value Added Tax Act would not be applicable and the seller will become liable for Value Added Tax on the sale.  In addition, it is very important to ensure that the tax payable on Capital Gains Tax is minimised and certain provisions must be inserted into the agreement to ensure that these taxes are limited as much as possible.  We can assist you with all these matters as we have the expertise and staff to draw these agreements and ensure that all these important aspects are considered.

With regard to the purchaser, he must ensure that the business he is purchasing is not encumbered by contingent liabilities or that the value of the stock is accurate and that there are no hidden liabilities, the assets are not hypothecated, that there are no pending labour disputes and the turnover of the business is what has been represented and a myriad of other crucial factors are considered. 

The sale must be published in the newspapers otherwise the assets purchased in terms of the sale may be exposed to attachment by the seller’s creditors for a minimum period of six months after the sale.  What this means is that if you purchase a business and you do not publish the sale the assets of the business may be taken away from your possession and sold to pay the seller’s creditors.

In the event of you purchasing a large business we may advise you to conduct a financial and legal due diligence investigation.  We have the staff, resources, and know-how to assist you in this regard as well. 

In the same way there are important  provisions which must be included in all other agreements and if a businessman attempts to draw the agreement himself or if he decides to rely on a business broker’s agreement he does so at his peril and may lose his entire investment or alternatively the seller may not be paid anything at all.

The drafting of agreements is a highly specialised area of law and it requires an expert to draw these agreements whether it be a major agreement such as a merger or acquisition or a listing on the stock exchange, right down to a simple Will or an Antenuptial Contract.  We have all the highly experienced and qualified staff who have had years and years of experience in this field to assist you and we urge you to seek legal advice when embarking on any activity which requires a written legal contract to record the rights and obligations of the parties thereto.

We advise all clients not to enter into verbal contracts as it may be difficult to prove the terms and conditions of the contract and certainly not all aspects of the sale can be contained in the verbal agreement.  The types are contracts which are most prevalent are contracts such as a sale of business agreement, sale of shares agreement, shareholders’ agreement, association agreement, Wills, Antenuptial Contracts.