Buying or selling a business in Victoria: What is a Section 52 Statement and why do you need one?
- Sapphire Bay Partners
- May 31, 2023
- 4 min read
At a glance
You need a Section 52 Statement if:
You are selling a business in Victoria
The sales price of the business is less than $450,000 (excluding stock and intellectual property
The business does NOT hold an active liquor license or permit (you are potentially exempt from a Section 52 if you hold a liquor license, but check with a lawyer first to confirm your exemption)
A Section 52 Statement needs to be provided by the seller to the purchaser
The statement outlines the financials performance of the business over the past two years and has a prescribed format
Section 52 Statements are commonly prepared by accountants, but businesses can prepare their own using the prescribed form
Tips
When looking to sell your business, ensure you have accurate and up to date financial records for the business.
Ensure the statement is the most up to date statement (see Consumer Affairs Victoria)
Talk to your accountant and/or agent. They will likely have experience assisting clients to draft the statement and can help you work out what information you will need to obtain and collate.
Selling a business for less than $450,000? Why you need a Section 52.
If you’re buying or selling a business in Victoria you may have been asked about or heard the term ‘Section 52 Statement’.
In this article we answer your questions:
Do I need to prepare a Section 52 Statement?
What is a Section 52 Statement?
When is a Section 52 Statement required?
What information does a Section 52 Statement contain?
What happens if it’s not provided or is false or inaccurate?
Who prepares the Section 52 Statement?
Do I need to prepare a Section 52 Statement?
A Section 52 Statement is required for the sale of a small business in Victoria at a price up to $450,000.00.
The goodwill, plant and equipment, and fittings of the business are used to calculate this price. This means $450,000.00 does not include the stock and intellectual property of the business.
The only exception is if your business holds an active license or permit under the Liquor Control Reform Act 1998 and cannot lawfully operate without one. Businesses like bars and clubs are therefore exempt from providing a Section 52 Statement.
You should get in touch with your business lawyer to clarify if you need one. If you do not have a business lawyer, feel free to contact the Sapphire Bay Partners team and we can refer you to an external lawyer to assist (we do NOT receive a financial incentive from this - we are just happy to help!).
What is a Section 52 Statement?
A Section 52 Statement is a small business disclosure statement in the form prescribed in Form 2 of Schedule 1 of the Estate Agents (General, Accounts and Audit) Regulations 2018.
Its formal title is ‘Statement by a Vendor of small business.’
The contents of a Section 52 are:
A: Important information for Vendor
B: Important information for Purchaser
C: Business information Section
D: Vendorʼs Business Operating Report
E: Vendorʼs declaration
F: Acknowledgement of Receipt by the Purchaser
All sections of this form need to be complete and accurate.
What information does a Section 52 Statement contain?
The statement provides a due diligence guide for a buyer and sets out the financial performance of the business over the last two years. From 20 May 2018, the statement must also provide the financial performance for the current financial year up to the most recent quarter. If the statement is not provided to the purchaser, the contract can be voided.
Only use the current version of the form which can be found on the Consumer Affairs Victoria Website
The Business Operating Report Section – Section D of the prescribed form
The largest part of the Section 52 statement is devoted to breaking down the income and expenses of the business over the previous two years, and up to the nearest quarter before the sale. This report is to be extremely detailed and is generally prepared by the vendor’s accountant.
Income for the small business is provided as gross income, profit after purchasing goods sold, and profit after current ongoing expenses are considered. When listing ongoing expenses, the statement requires the vendor to break costs down into categories as individual as postage, phone and internet bills, and banking charges.
The vendor must include “any liability that runs with the business, for example, an adverse planning or environment ruling affecting the operating precinct of the business or a taxation dispute or other litigation concerning the business if it is a corporation.”
What happens if it is not provided or is false or inaccurate?
If the statement is false or inaccurate or the Section 52 Statement is not provided to the purchaser before they sign a sale of business agreement or pay a deposit then the purchaser could have the right to avoid the contract within three (3) months of signing.
Avoiding means all of the purchaser's money and deposit are refunded and the contract is at an end.
This right to avoid is only available where the purchaser hasn’t already taken over the business and settled the sale.
There can also be penalties awarded for failing to provide the statement and a purchaser may need to commence court proceedings to enforce these rights.
Who prepares the Section 52 Statement?
The Section 52 Statement is usually prepared by the seller’s accountant with assistance from the owner/seller and their lawyer.
However, a vendor may prepare their own, but they will need a lawyer to prepare the accompanying contract in order for it to be effective.
Have more questions or want to discuss?
The Sapphire Bay Team is always happy to help.
Feel free to get in touch at letstalk@sapphirebay.com.au or +61 3 9563 4666.
Disclaimer
The Sapphire Bay team provides this information for general purposes only as we want all taxpayers to be educated and aware of their obligations.
It should not be relied upon as legal or tax advice and we always encourage you to obtain professional assistance from your relevant advisor with respect to your specific situation.
If you need to help finding a legal practitioner to assist with your needs, even if you are not a client of ours, feel free to contact us and we can refer you to someone who could help.
Note: We do not receive any financial incentive or reward from any referrals; we just like to help!
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