Selling your practice as agoing concern

Background

Whether you are in the process of or simply just contemplating selling your practice, it is imperative that you consider all the factors that go along with the process.

It is crucial to determine what it is you are selling and how you want to sell it.

The same goes for the purchaser in terms of what they are buying. In many instances, when a practice is being sold it is not just the enterprise that is being sold but everything that comes with it like the goodwill, immovable property, employees and the assets of the practice. Many practices commonly get sold as a going concern.

What is a Going Concern?

If, after a practice has been sold and it is the same as it was before the sale, the practice is said to have been sold as a going concern.

This does not necessarily mean that the entire practice is required to be sold, a set of rooms, specific division or function of the practice can also be sold. Applying the concept of a going concern in this manner is to cater for practices that outsource certain functions.

The benefits and implications of selling or buying as a going concern

When selling or purchasing any practice as a going concern, the process usually involves the transfer of all employment contracts and contracts dealing with the outsourcing of certain divisions or functions of the specific practice.

After the transfer, the same conditions would exist from the previous owner and move over to the new owner. Of particular importance is continuation of certain provider contracts with the funders. It should be established at the outset which are able to be transferred to the new owner.

Staffing

The impact that transfer of ownership has on the employees is provided for in section 197 of the Labour Relations Act, which requires the new owner or employer to take over all the obligations towards the employees from the previous owner.

TAX

Additionally, when you sell your practice as a going concern there are particular tax benefits.

If both the purchaser and the seller are registered VAT vendors the transaction will be considered “zero-rated”.

However, for this to occur, the parties have to agree that the practice will be sold as a going concern and must be registered as VAT vendors.

In finality

In conclusion, knowing how legislation should guide your decision-making and how to avoid decisions that could result in financial loss or legal issues is crucial.

Therefore, please consult with a professional consultant before entering into any agreements relating to the purchase and sale of a practice as a going concern.

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