Legal Procedures Involved in Sale of Business - Memorandum of Advice

Memorandum of Advice
To: - LH Hoteliers Limited
From: - Mr. Robert Smith
Date: - 28th February 2019
Relevant Law: - Company Law Act of New Zealand
Facts & Issue: -
LH Hoteliers Limited is a vendor and the shares are owned by Smith (20%) and Ruawai (80%).
As Ruawai is planning to sell the LH Hotel, total purchase price has been decided to be $
800,000 excluding GST. This memorandum of advice is to advise the vendor on the legal
procedures involved in sale and the terms of the agreement for the sale of a business, and the
issues to be considered by the vendor before and after settlement.
Analysis and Suggestions
The practitioner of vendor should obtain a complete list of all tangible as well as intangible
assets under sale, which should be attached to the agreement. Along with it, latest depreciation
schedule of vendor is attached to identify tangible assets and allocate the price to be paid for
individual items. The settlement date is 31st May 2019 at 3 p.m. The agreement for sale of
business is prepared by the vendor. If vendor is planning to sell business as well as freehold title
to the business premises, normal conveyancing procedures should be applied regarding freehold
land and there is no restriction on right of the vendor to sell the fixtures. The form of business
sale agreement should include particular provisions that are generally used in standard real estate
sale agreements along with those otherwise essential for business sale. The vendor can also use a
separate but collateral agreement for sale of real estate.
Terms of agreement for the sale of a business

The standard agreement is used in the sale and purchase of businesses. It could be beneficial if
the contracts for sale of business are in written form according to the Property Law Act 2007.
The role of the practitioner of vendor is significant and for drafting an agreement for sale
includes receiving clear instructions from vendor (REA, 2019). The practitioner should advice
the vendor regarding the legal procedures involved in sale of business. The practitioner should
discuss and advice the vendor regarding any kind of additional terms and variations to the
agreement. The practitioner assesses the level of financial understanding of the vendor if
essential. The vendor is advised to take financial advice from accountant or financial advisor so,
it is suggested that Smith does not have sufficient knowledge regarding finances, to take advice
from accountant or financial advisor. It will ease the process of allocating the purchase price
between goodwill and taxes related to the recovered depreciation. The sale of business and assets
can be zero rated for GST, if the tax treatment are considered.
The vendor should not prepare the agreement until the purchaser is not confirmed, however, it is
prepared in some situations through real estate agent or through brokers. If the parties have not
signed the agreement, the practitioner of vendor has the right to review and amend the draft
prepared through agent after taking the instructions from the vendor or its agent on sale
(Consumer Protection, 2019). The agreement is then provided to the practitioner of purchaser
and after negotiations between both the parties, the amendments are made in the agreement
before finalizing it.
While sending the draft agreement to the practitioner of the purchaser, the practitioner of vendor
should reserve the position of the vendor and should confirm the ability of the vendor to review
and amend the proposed agreement. It should also be ensured that no legal obligations could
occur on the part of vendor until the execution of the contract (Real Estate Authority, 2019).