Contents
If you’re considering buying or selling a business in Australia, you’ve likely come across the term “going concern.” It’s one of those phrases that pops up in contracts, negotiations, and even accounting discussions – but what does it really mean? And why does it matter so much when you’re involved in a business sale?
Navigating a business sale can be exciting, but also a bit overwhelming. Whether you’re making your first acquisition, planning to step back as an owner, or simply want to maximise value in a transaction, understanding the “going concern” business concept is vital. Getting it right isn’t just about legal compliance – it can have huge tax, operational, and risk implications for both buyers and sellers.
In this guide, we’ll explain the going concern meaning, why the going concern assumption is crucial in business sales, what requirements are involved, and how the right legal steps can make your transition smooth and secure. If you’re ready to get the best outcome for your business deal, keep reading – and remember, if you need tailored advice, we’re here to help.
What Is a “Going Concern”? Defining the Concept
Let’s start with the basics – what exactly is a “going concern business” in the Australian context?
Going Concern Definition (in Plain English)
At its most fundamental, a business is said to be a going concern if it is currently operating and is expected to continue operating for the foreseeable future. This concept comes from accounting and business law, and it underpins many decisions about a business’s value, how contracts are structured, and even how taxes are calculated.
So, when we talk about a business being sold as a “going concern” in Australia, it means that the business is not being wound up or liquidated – instead, it’s being handed over to a new owner as a functioning, ongoing enterprise. Employees, assets, contracts, customers, and business operations transfer to the buyer, and there’s an expectation that the business will keep running just like before.
The Going Concern Principle & Accounting
The “going concern principle” is also central to accounting. In simple terms, this means accountants and business owners prepare financial statements under the assumption that the business will continue to operate (rather than being shut down or liquidated suddenly). This affects everything from how assets are valued to how debts are managed. For more on accounting principles, check out our guide to business valuation.
Why Does the Going Concern Concept Matter?
The going concern status matters in business sales because it impacts:
- Tax Treatment: Certain concessions (like GST exemptions) are available if a business is sold as a going concern.
- Operational Continuity: Staff, customers, and suppliers can transition smoothly if the business doesn’t pause operations.
- Business Value: A going concern is often valued higher than a business that’s been shut down or is dormant.
How Is a Going Concern Sale Defined in Australian Business Law?
A “going concern” sale is a very specific legal and tax concept in Australia. Let’s clarify how it works.
Going Concern Business Sale: Legal Requirements
According to the Australian Taxation Office (ATO), a business can be sold as a going concern if:
- The assets and operations necessary to continue the business are included in the sale (not just an empty company shell or some leftover stock).
- The business is carried on until the day of sale – it doesn’t stop trading in between.
- Both the buyer and seller are registered for GST (if applicable), and they agree in writing that the sale is of a going concern.
This definition is important, as both the buyer and seller need to meet these requirements for the transaction to be legally considered a “going concern sale” – which comes with special advantages (more on that below).
If you’re unsure what should be included in a going concern business sale, our comprehensive guide on buying a business breaks it down step-by-step.
GST and the Going Concern Exemption
One of the key reasons the going concern concept is so important in Australian business sales is tax – specifically, Goods and Services Tax (GST). Usually, when you sell business assets, GST applies. However, if you sell your entire business as a “going concern,” you may not have to charge GST (provided all the requirements are met and the sale contract states it’s a going concern sale).
For buyers, this can make a significant difference to cash flow and up-front costs – and for sellers, it can make your business more attractive. But you have to structure everything correctly and have the right legal agreements in place.
How Do You Know If a Business Is a “Going Concern”?
It’s not always obvious whether a business qualifies as a going concern under Australian law. There are a few key indicators:
- Continuity of Operations: The business doesn’t stop trading before the handover – customers are still being served, staff remain employed, and existing contracts are still being fulfilled.
- All Key Assets Remain: Assets like intellectual property, stock, leases, and equipment stay with the business and are included in the sale.
- Transfer of Essential Contracts: Major supply, service, and customer agreements transfer to the new owner where legally possible.
The precise content of a business sale agreement can play a big role in ensuring all of these elements are handled properly.
What’s the Value of a Going Concern Business?
One of the biggest advantages of purchasing a going concern business is its value – both financially and strategically. Here’s why:
- Business Value (Going Concern Value): When you buy a business as a going concern, you’re not just buying a collection of assets. You’re buying ongoing revenue, established goodwill, staff who already know the ropes, a spot in the market, and often a robust operating system.
- Smoother Transition: Your business can keep trading with minimal disruption, maintaining customer relationships and cash flow.
- Minimised Risk: The “turnkey” nature of a going concern reduces the risk that the business will falter or lose momentum during the change of ownership.
Of course, this higher value also means there’s a greater need for due diligence and good contracts to protect both the buyer and seller – to make sure the business really is a “going concern” at handover. You can read more about valuing a business in Australia in our separate guide.
What Are the Legal Requirements for Selling a Going Concern?
Transferring a going concern business isn’t as simple as handing over the keys. There are some crucial legal requirements you need to meet:
- Sale of a Business as a Going Concern Clause: The sale contract must include a statement that the sale is for a going concern. If you’re not sure how to draft this, a lawyer can help you structure the sale agreement properly.
- GST Registration: Both buyer and seller must be GST-registered if you intend to rely on the going concern exemption for GST purposes.
- Uninterrupted Operation: The business must keep trading up to (and including) settlement. If the business stops, GST may apply and the deal could unravel.
- Inclusion of All Essential Elements: All items necessary to continue operating (assets, leases, employees, contracts) are transferred – not just a part of the business.
- Written Agreement: There must be a written agreement between buyer and seller, clearly stating it is a sale of a going concern and identifying the assets and components involved.
Failing to meet any of these requirements can turn a supposed “going concern” sale into a taxable transaction, with costly consequences. Getting the contract and settlement process right is absolutely critical.
What Legal Documents Do You Need for a Going Concern Business Sale?
Whether you’re buying or selling, having the right legal documents is the best way to protect your interests and ensure the transaction is recognised as a going concern by the ATO and any other authorities.
- Business Sale Agreement: The backbone of any business sale. This contract sets out exactly what’s being transferred, warranties, settlement process, GST stance, and more. Get advice or a review for your business sale agreement to ensure it matches your intentions.
- Lease Assignment or New Lease: If the business involves premises, you’ll need to formally assign the lease to the buyer (or secure landlord consent for a new lease). Learn about assigning a lease here.
- Employee Transfer Letters: Ensure staff can be maintained under existing awards/entitlements; address redundancy, notice periods, and ongoing employment terms.
- IP Assignment Agreements: Critical for businesses with brand assets, recipes, patents, trade marks, or custom software. Read about protecting your business’s IP here.
- Supplier/Customer Contract Assignments: Many key third-party agreements will need to be formally transferred or re-signed.
- Non-Disclosure Agreement (NDA): If you’re sharing business-sensitive information during negotiations or due diligence, an NDA can help protect your secrets. Here’s why NDAs are important in business sales.
Every business sale is unique, so the contracts you need may differ. For an in-depth look, our business sale checklist covers the stages and documentation required.
Common Pitfalls: What Can Go Wrong With a Going Concern Sale?
Many business sales go smoothly, but unfortunately, we see a lot of deals go sideways when parties overlook the finer points of the going concern concept. Here are a few things to watch out for:
- Partial Asset Sales: If not all necessary assets or agreements are included, the sale might not qualify as a going concern – and tax or operational headaches can result.
- Interruptions to Business Operations: Even short shutdowns between contract execution and settlement can cause the ATO to say the going concern requirements haven’t been met.
- Poorly Drafted Contracts: If the agreement is vague about what’s being sold or omits the GST/going concern clauses, disputes can arise later (and you may lose your tax concessions).
- Staff or Lease Refusals: Landlords or staff sometimes won’t agree to transfer, which means the business can’t continue as before. Anticipate and plan for these scenarios upfront.
Getting legal support early on, including due diligence and tailored agreements, can save both buyers and sellers from expensive, time-consuming disputes.
Does the Going Concern Principle Apply to All Business Types?
The going concern principle is broad in Australian law, but not every sale can qualify. Here’s what to consider:
- Selling only part of a business (like a product line) usually doesn’t meet the going concern definition.
- Selling property without the operation of a business (e.g., just a commercial site, but not the trading business there) won’t trigger the going concern rules.
- Franchise sales can often be structured as a going concern – but need careful contract review and franchisor approval. Learn more in our franchising guide.
If you’re unsure, getting legal clarity before marketing or negotiating a sale is always a smart step.
Key Takeaways: Going Concern Business Sales in Australia
- The “going concern” concept means selling a business as an ongoing, live operation – not just a set of assets.
- Selling or buying a going concern can have major GST, legal, and practical implications – and the sale needs to be correctly structured to benefit.
- To qualify for GST exemption, both parties must be GST-registered, all business assets/operations must be transferred, and the business can’t be interrupted before settlement.
- Well-prepared legal documents, including a tailored business sale agreement, lease transfers, employee continuity arrangements, and IP assignments, protect both sides in the transaction.
- Poorly handled going concern sales can lead to disputes, lost tax benefits, or business disruptions – thorough due diligence is essential.
- You don’t have to figure it out alone – getting legal help makes the process smoother, safer, and more valuable for everyone involved.
If you’d like guidance or a free, no-obligations chat about buying or selling a going concern business, please contact Sprintlaw at 1800 730 617 or team@sprintlaw.com.au – we’re here to help you handle your business sale the right way.
Meet Our Lawyers for Business Sales
Get in touch now!
We'll get back to you within 1 business day.