Contracts, Premises & Licences When Selling a Business

1. The Asymmetry

What happens to your contracts is the second-biggest practical difference between the two ways of selling — the share sale and the sale of the business. It is also the part of the deal where timetables go to die.

On a share sale, your contracts are with the company, and the company is still there. So in principle nothing moves. Nobody signs anything, nobody consents, no counterparty gets a say. That is the biggest practical advantage of a share sale, and it is why deals that look impossible as asset sales become straightforward as share sales.

In principle. Plenty of contracts say that if the ownership of the company changes, the other party may walk away, must be asked first, or may reprice. Your advisors call it a change-of-control clause. They sit in predictable places — and usually fewer than ten matter. Find them before the buyer does.

One South African wrinkle: where customers care about your empowerment credentials, a change of shareholding changes your B-BBEE scorecard, and some contracts let a customer review or exit if your rating drops. If your contracts trade on your empowerment status, read them with that in mind before the deal becomes known.

2. Rights You Can Hand Over, Obligations You Cannot

On a sale of the business, nothing moves by itself. Every contract has to be handed across one at a time, and one rule explains everything that follows.

Almost every real contract contains both, so in practice almost every contract needs a yes. That is why a business sale takes longer and carries more risk than a share sale, and it hands every landlord, key customer and important supplier something they never had before — a veto, and with it, an opportunity.

Your employees are the one exception worth naming: on a going-concern business sale they move to the buyer automatically under section 197 of the Labour Relations Act — no consent conversation, no contract-by-contract handover.

3. Consents Set the Pace of the Whole Deal

Because you need those yeses, the consent list is not administration. It is the critical path. The slowest consent is your real closing date, whatever the agreement says, and the long stop date in your conditions has to be built off it. So start early, and sort the consents in week one into three piles.

Now the uncomfortable part. When you ask for consent, you are telling a counterparty that you are selling and that you need something from them. Say your business is worth R40 million and one customer is R11 million of your R30 million turnover. On a business sale that customer must sign a consent. They now know you are selling, they know the deal cannot close without them, and they have a procurement manager who has wanted a discount for two years — who now has the leverage to get it. Most behave reasonably. Some do not, and the ones who do not are usually the ones who matter most.

If a key customer refuses outright, none of your options is good:

4. Your Premises

If you lease, the landlord’s consent is almost always required, and landlords rarely give it for nothing. If your rent is materially below market, assume the landlord will use the moment — a below-market rent is exactly what a landlord reprices the moment they get a say.

If your company owns the property, it must be transferred at the Deeds Office through a specialist attorney — the process is called conveyancing — with its own timetable and costs. You need a rates clearance certificate from the municipality, which requires the rates account to be paid up and often takes weeks on its own, plus electrical and other compliance certificates. Eight to twelve weeks is a fair expectation and often optimistic.

On a share sale none of this happens, because the company that owns the property still owns it. The buyer’s advisors will still examine the title, the zoning and the approved building plans, and it is common to find that the workshop extension built in 2014 was never approved.

Either way, the premises belong on the consent list from week one. A buyer who cannot occupy the building is not buying the business you are selling, and the landlord and the Deeds Office each run on their own clock, not yours.

5. Licences and Permits

Be honest with yourself here, because this is where confident assumptions cause the most damage.

Many licences and permits cannot be transferred at all. For a good number of these the buyer cannot take yours and must apply for their own. That takes months, in some industries closer to a year, and occasionally the answer is no.

Which is why licence approval belongs in the suspensive conditions, with a long stop date that reflects how long the regulator actually takes. It should never be a post-closing surprise, because a buyer who cannot trade lawfully on the Monday after closing has a problem that becomes yours within a week.

On a share sale the licence holder is unchanged — but several regulators require notice of a change of control and a few require prior approval. Check the licence conditions, not the assumption.

6. The Section 34 Notice in the Gazette

When a trading business is sold, the law says the seller’s creditors are entitled to know before it happens. That is section 34 of the Insolvency Act. You publish a notice in the Government Gazette and in local newspapers, in a window before transfer — not too early, not too late.

Skip it, and for six months your creditors can treat the transfer as if it never happened and chase the assets in the buyer’s hands. No buyer accepts that risk, so it is not optional.

On a share sale there is no notice and no publicity, because the company is selling nothing; you are. It is one more reason the two structures feel so different in practice — one runs quietly, the other announces itself.

7. Money Your Customers Owe You

On a business sale you have a real choice about your book debts — the money customers owe you at the transfer date. On R30 million of turnover collected in about sixty days that is roughly R5 million, so it is a commercial decision, not a technicality.

What you owe suppliers usually stays with you and is settled out of the proceeds — which is also why the creditors’ notice described above exists.

8. The Contracts File

The single most useful thing you can do here is unexciting. Build a schedule of every contract that matters, recording for each one:

All of it is cheap to fix in the six months before you go to market and expensive during due diligence, because by then every gap is a warranty you cannot give or a reason to hold more money back. The contracts file is where deals slow down. Getting it in order before anyone is watching is worth real money.