In Singapore, purchasing an established company is not a simple process. There are several things that one should take into account.
- Due diligence
Before you spend your hard-earned money, it is crucial to understand what is actually being sold once you have decided which company to purchase. Before finalizing the purchase, you must verify that the company is what the seller claims. In addition to assisting you in negotiating the terms of the agreement between you and the seller and the price of the business, the information you get throughout this screening process will also help you decide whether you are willing to assume any potential legal risks.
- Topic: How to Buy Over a Business in Singapore
It is useful to list the company’s assets because doing so will enable you to fairly assess the company and identify any potential areas for asset ownership litigation. Some assets to which you may want to pay close attention include the following:
a) Financial Resources
This refers to company assets that are crucial for the smooth operation of the company. It could consist of equipment, trucks for transportation, etc. You should confirm that the seller is the legal owner of these tangible assets and that they are insured and in excellent functioning order.
b) Intellectual property
It is a crucial company asset that shouldn’t be ignored. In essence, this refers to anything that has been developed by a person and confers that person with ownership rights. You should ascertain whether you are purchasing that person’s rights or whether you must act in accordance with those rights.
C) Material agreements
Any document outlining the company’s internal affairs (such as shareholder agreements, joint venture agreements, employment contracts) as well as its outward relations with clients would fall under this category. Understanding these contracts is crucial so that you may fulfill your commitments and prevent the appropriate parties from suing you. It’s also a good idea to be aware of the contracts that the company must uphold in order to function properly.
- Has the company complied with all legal requirements?
It is essential to confirm that the company you acquire complies with all applicable laws as set forth by statutes or governmental agencies. You might have to pay additional money in the form of fines if you acquire a company that isn’t operating legally. Furthermore, since you won’t have a comprehensive understanding of what occurred before you took over the company, it will be difficult for you as the new owner to undo the wrongdoings of the former owners. As a result, check to determine if the following exist and are current.
a) Consent
Included in this are any necessary licenses, permits, and any other agreements with authorities granting the company permission to carry out specific tasks. For instance, if you are purchasing a pub, you should confirm that the establishment has a permit allowing live music to be performed until late at night.
b) Tax
If the firm you buy is GST-registered, you will need to reapply for GST once you take over because the company is now under new ownership. To avoid difficulties with Singapore’s Inland Revenue Authority, you will also need to remember to file personal income tax forms that are distinct from business taxes (IRAS)
- Exist any pending or threatening legal actions against the company?
The firm could suffer if there is not legal compliance as indicated in 3. or if one of the important contracts in 2. has been broken. The next step is to check to make sure you are not acquiring a struggling company. If the seller has not informed you about any pending or potential legal actions against the company, you should investigate them.
Once negotiations are over, it’s time to formalize the agreements in a written document. This written agreement should expressly state, among other things, who owns the company’s various assets and how legally compliant the company is. You will have the chance to put clauses in this agreement that would protect you from any losses incurred after acquiring the company.
Considering purchasing a business?
Please don’t hesitate to contact us for a free consultation if you’re thinking about buying an established business in Singapore and would like legal assistance.
