In South Africa, one of the most common ways to buy or sell an established enterprise is through a sale of business as a going concern. This type of transaction allows an existing business to be transferred in its entirety, enabling the purchaser to step into an operational, revenue-generating concern rather than acquiring isolated assets.
This article explains what a sale of business as a going concern entails, why parties choose this structure, the key risks to be aware of, and the legal process that must be followed under South African law.
What Does “Sale of a Business as a Going Concern” Mean?
A sale of business as a going concern involves the transfer of a functioning business as a single commercial unit. This typically includes:
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The business’s assets
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Its goodwill and trading name
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Ongoing operations
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Existing contracts
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Employees
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Customer and supplier relationships
The defining feature of a going concern transaction is continuity. The business continues trading with minimal disruption, with ownership simply changing hands.
This structure is commonly used where a business owner wishes to retire, exit the business, or pursue new opportunities, while preserving the value built up in the enterprise rather than winding it down or selling assets individually.
Why Parties Choose a Going Concern Structure
Key Advantages
Operational continuity
The business continues operating seamlessly, which helps protect revenue streams, client relationships, and brand value.
Established commercial framework
The buyer acquires an operating business with existing systems, suppliers, contracts, and customers already in place—reducing start-up risk.
Workforce retention
Employees generally transfer with the business, preserving institutional knowledge and operational stability.
Financing considerations
Lenders are often more comfortable funding the acquisition of an established business with a trading history than a greenfield venture.
Key Risks to Manage Carefully
While attractive, going concern transactions carry specific legal and commercial risks that must be properly managed.
Inherited liabilities
Unless carefully structured, the purchaser may assume historical liabilities, including debts, contractual obligations, or unresolved disputes.
Employee-related exposure
Labour law protections mean employees transfer automatically in most cases, potentially bringing historical wage, benefit, or dispute risks with them.
Regulatory and compliance obligations
The buyer steps into the regulatory footprint of the business and must ensure ongoing compliance with licensing, zoning, industry regulation, and environmental requirements.
These risks underline the importance of proper due diligence and a carefully drafted sale agreement.
Legal Process and Requirements in South Africa
A sale of business as a going concern is not merely a commercial deal—it is a legally regulated transaction that must follow specific steps.
1. Due Diligence
The purchaser should conduct a comprehensive legal, financial, and operational review of the business. This includes assessing:
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Financial performance
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Material contracts
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Employment matters
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Regulatory compliance
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Existing or potential liabilities
2. Sale of Business Agreement
The transaction must be recorded in a written Sale of Business Agreement, setting out:
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The purchase price and payment mechanics
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Assets and liabilities being transferred
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Employee treatment
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Conditions precedent
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Risk allocation and warranties
This agreement is critical to protecting both parties’ interests.
3. Tax Considerations
Depending on how the transaction is structured, tax consequences may include:
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VAT implications (particularly where the sale qualifies as a going concern)
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Capital gains tax exposure
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Transfer duty considerations in certain circumstances
Early tax input is essential to avoid costly mistakes.
4. Regulatory Approvals
Certain industries require prior approval from regulators or third parties before the transaction can be implemented. These must be identified early to avoid delays or failed closings.
Final Thoughts
A sale of business as a going concern can be an efficient and commercially sensible way to transfer ownership of an established enterprise. When properly structured, it allows sellers to realise value and buyers to acquire a functioning, income-producing business.
However, these transactions are legally complex and carry material risks if not handled correctly. Proper due diligence, clear contractual drafting, and professional advice are essential to ensuring a smooth and enforceable transaction.
If you are considering buying or selling a business as a going concern, our corporate and commercial law team can guide you through every stage of the process.
Contact O’Reilly Law today to arrange a consultation with one of our specialist commercial attorneys.