Warranties in a Contract of Sale
The sale of an established Financial Planning or Accounting practice should be an exciting experience, and appropriate warranties can help to ensure that the entire process goes smoothly and both parties remain protected. Taking the time to research and understand the available warranties will help provide peace of mind for both seller and buyer alike. With this in mind, it is important to make sure you consult with experienced professionals when negotiating any sales agreement so that all necessary protections are taken into consideration.
Below is a list of some common warranties we come across from both buyers and sellers:
Warranties a seller may expect to be asked to provide are :
1. All advice provided by the practice has been in accordance with the Corporations Act, Financial Advisers Act, and relevant regulations.
2. The assets bought (practice operations) will operate as represented or disclosed to the buyer prior to the sale.
3. The ownership of assets has been legally transferred and is free from encumbrance or any limitation on ownership rights.
4. The practice is compliant with all relevant laws and regulations including tax obligations and licensing requirements where applicable.
5. All material documents are in place for clients including current Statements of Advice, Client Agreements, Fee Disclosures, etc.)
6. All client records are up-to-date and accurate.
7. All client funds have been correctly applied in accordance with their instructions.
8. The practice is solvent (no outstanding debts or liabilities).
9. All staff have executed relevant agreements and authorizations to enable a smooth transition of ownership.
10. That all external relationships the vendors had prior to the sale will continue, such as third-party service providers, software providers, etc.
11. That all clients are aware that the business has changed hands and written consents have been obtained where necessary for continuity of advice/service provisions post-sale date e.g., Tax agents, Accountants, etc.).
12. Vendor is not aware of any material matter which would be likely to adversely affect the value of the practice.
13. All client files have been backed up and stored in a secure format, with access given to the buyer as required.
14. The seller has taken all reasonable steps to ensure that the information provided is accurate and up-to-date.
15. That no third-party intellectual property rights have been infringed e.g., use of software that does not have a valid license, etc.).
16. Any representations made about the practice prior to sale are true and correct (e.g., number of clients, revenue, etc.).
17. No confidential information has been withheld by the Seller or anyone associated with them such as employees/directors, etc.).
18. No legal proceedings have been initiated or threatened against the practice.
19. No material changes have occurred since the sale was agreed upon (such as clients leaving, staff resigning, etc.).
20. The Seller is not aware of any unrecorded liabilities prior to Completion.
21. That the Company is not in breach of any legal, contractual, or other obligation and has all necessary approvals and consents required for it to continue trading post-Completion.
22. That no party is in default of a Material Contract and all liabilities due and payable up to Completion will be paid in full by Completion date.
23. All entitlements due to employees including wages, entitlements, superannuation payments, etc., are up-to-date prior to Completion.
24. All employee records are up-to-date including contracts, position descriptions and roster/ shifts, etc.
25. That the Company is liable to pay prior to Completion any outstanding supplier payments, rent, or other contractual obligation due for services rendered up until the Completion date.
26. That all taxes have been paid in accordance with statutory requirements and no disputes exist on the amount owing prior to the completion date.
27 The Seller indemnifies the Buyer against any claims made by third parties relating to the ownership of assets purchased from the Completion date onwards.
28. The Seller warrants that there are no undisclosed liabilities that a reasonable buyer would consider material and ought to be disclosed prior to Completion.
29. That all systems, software, and equipment are up-to-date, in good working order and free from defect or damage.
Warranties a buyer may expect to be asked to provide are :
1. That the buyer is authorized and able to enter into the transaction.
2. That all relevant documents have been provided and verified by an independent professional (e.g., Due Diligence reports).
3. That all funds required for purchase are available prior to the Completion date in a manner acceptable to the Seller.
4. That no existing agreements, contracts, or other legal obligations exist which would prevent or delay the sale process from being completed successfully and on time.
5. That there are no undisclosed liabilities that could be detrimental to the business post-Completion date, such as undisclosed debts or third-party claims against the practice which would not be covered under normal insurance policies, etc.).
6. That the buyer is not aware of any material matters which would be likely to adversely affect the value of the practice.
7. That all financial information provided by the Seller is true and correct, with all taxes paid as required.
8. That no third-party intellectual property rights have been infringed e.g., use of software that does not have a valid license, etc.).
9. Any representations made about the practice prior to sale are true and correct (e.g., number of clients, revenue, etc.).
10. No confidential information has been withheld by the Buyer or anyone associated with them such as employees/directors, etc.).
11. All relevant documents have been signed or witnessed where necessary (e.g., contracts, agreements, etc.).
12. That the buyer has complied with all relevant laws and regulations prior to the completion of the sale (including but not limited to taxation, employment law, etc.).
13. That no undisclosed liabilities exist which would affect or reduce the value of the practice post-Completion date.
14. That the Buyer is not aware of any existing disputes directly related to terms of the sale agreement that could be detrimental to either party once the Completion date has been reached.
15. That proper procedures have been undertaken for the transfer of client records and other confidential information in accordance with legal requirements as applicable in the relevant jurisdiction.
16. That all necessary approvals from regulatory bodies, such as local councils, have been obtained and will remain in place post-Completion.
17. That all staff has been informed of the sale, their rights, and any changes that may occur as a result of the sale process.
18. That no third party has an interest in the practice or any assets which are being sold from the Completion date onwards.
19. That all relevant insurance policies (e.g., public liability) are up to date prior to completion of the sale agreement and provide suitable levels of cover post-Completion date.
20. That no disputes exist between the Buyer and any third parties with respect to the ownership or use of assets purchased from Completion onwards (e.g., intellectual property).
These warranties provide protection for both parties involved in a Financial Planning practice sale. The seller is protected from claims related to legal issues with their business; while the buyer is protected from inheriting liabilities or other unforeseen issues pertaining to the business they are purchasing. It’s important to consider these warranties when making any purchase agreement and ensure that both parties are covered in case of any disputes or misunderstandings
Notes ;
It is always best to consult with an experienced solicitor or legal advisor before making any financial business purchase agreement. This will help to ensure that all parties involved have the necessary protection they need in case of any disputes or misunderstandings. Additionally, having appropriate legal advice can provide invaluable guidance when deciding on how best to structure the sale transaction. Furthermore, engaging a professional broker who specializes in this field can also be beneficial as they can provide further insight into what warranties may be available and advise on strategies for negotiating terms of sale. Ultimately, having the right protections in place can help create a smoother transaction overall.
The sale of a Financial Planning practice should be an exciting experience, and appropriate warranties can help to ensure that the entire process goes smoothly and both parties remain protected. Taking the time to research and understand the available warranties will help provide peace of mind for both seller and buyer alike. With this in mind, it is important to make sure you consult with experienced professionals when negotiating any sales agreement so that all necessary protections are taken into consideration.