Selling a business as a going concern: VAT, staff, leases and price

What a going concern sale is, and what it is not

A going concern is a business that is trading on the day it changes hands. Selling it as one means the buyer gets everything needed to keep it trading: equipment and fit-out, stock, name and goodwill, customer and supplier relationships, the premises (owned or leased) and, by operation of law, the staff.

SARS calls the test a "capacity to continue": the buyer must be able to run the business in the same form without further action. That rules out three common situations:

• A business that has stopped trading, or has not started. SARS's view is that a dormant business, or one yet to begin, is not an income-earning activity. If yours has closed, the value is in the assets, which are sold as movable assets.
• A building sold to its only tenant. The buyer gets the property but not a letting business.
• A sale and leaseback. No income-earning activity passes to the buyer.

A branch or division that can run on its own can be sold as a going concern, and you can keep assets the business does not need, such as old stock or the debtors book.

VAT: when the sale is zero-rated

A VAT vendor selling its business would normally charge VAT at the standard rate, currently 15%, in force since 1 April 2018 (SARS: VAT), on the whole price. Section 11(1)(e) of the VAT Act lets that supply be charged at zero per cent, but only if every requirement is met:

1. The seller and the buyer are both VAT vendors. A buyer who is not yet registered must have applied before the agreement is concluded, and the registration must then be granted.
2. What is sold is an enterprise, or a part capable of separate operation.
3. The parties agree in writing that it is disposed of as a going concern.
4. At the time they conclude the agreement, they agree in writing that it will be an income-earning activity on the date of transfer.
5. The assets necessary to carry it on are disposed of to the buyer.
6. They agree in writing that the price includes VAT at the rate of zero per cent.

Without the written agreement, SARS says the zero rate does not apply even if the business genuinely changed hands as a going concern. If the zero rate is applied wrongly, the seller is liable for the VAT plus interest and penalties, so SARS advises a clause adding VAT at the standard rate if the sale does not qualify.

The documents the zero rate depends on

Without them there is no zero rate. SARS expects the seller to hold them within 90 days of the earlier of the invoice or the first payment (SARS Interpretation Note 31, Issue 5, 17 July 2026); if they are missing, the seller must account for VAT out of the price.

When the premises are part of the sale

SARS is clear that a property sale attracts VAT or transfer duty, never both. If the seller is a VAT vendor and the property forms part of its enterprise, the sale carries VAT: at zero per cent if every going concern requirement is met, otherwise at 15%. If the seller is not a VAT vendor, or the property is not part of its enterprise, the purchaser is liable for transfer duty. Your conveyancer confirms which applies.

The seller's income tax

Capital gains tax on goodwill, and recoupment of allowances claimed on equipment, depend on how the agreement allocates the price. Under the Eighth Schedule to the Income Tax Act as it stands, the small business exclusion lets an individual disregard up to R1,800,000 of capital gain over a lifetime, where the market value of all the business’s assets, ignoring its debts, is no more than R10,000,000 (SARS, Taxation in South Africa 2026, section 2.13.9). A draft Bill published with the February 2026 Budget would raise these to R2,700,000 and R15,000,000 from 1 March 2026, and SARS’s web page already shows the higher figures, but Parliament was still holding hearings on the Bill on 30 September 2026, so check with your tax practitioner which figures apply when you sell. The exclusion is for an individual aged 55 or older (or selling because of ill-health, infirmity, retirement or death) who has held the business assets for at least five years and been substantially involved in running the business (SARS capital gains tax guide, para 12.6.2). A sole proprietor, a partner, or a shareholder selling their entire interest of at least 10% can qualify; a company selling its own business cannot. Settle the structure and the price allocation with your tax practitioner before you sign.

Your staff and section 197

Section 197 of the Labour Relations Act applies when a business, or part of one, is transferred by one employer to another as a going concern. Unless otherwise agreed in the way the Act allows:

• the buyer is automatically substituted as employer in every employment contract in existence immediately before the transfer;
• all rights and obligations continue with the buyer, and anything you did before the transfer, including a dismissal or unfair labour practice, is treated as done by the buyer;
• continuity of employment is not interrupted;
• their contracts continue on the same terms; the buyer may employ them on different terms only if those are, on the whole, not less favourable, and that route is closed where any of their conditions are set by a collective agreement.

A different arrangement needs a written agreement with the union or employee representatives the Act names, not just with the buyer.

What you and the buyer must agree

Section 197(7) requires you and the buyer to agree a valuation, at the transfer date, of accrued leave pay, the severance pay that would be due on a retrenchment, and other accrued but unpaid amounts; to agree in writing which of you is liable and how it is provided for; and to disclose those terms to each transferred employee. It is often settled as a price adjustment.

For 12 months, the seller stays jointly and severally liable for those payments if a transferred employee is retrenched or the buyer is liquidated or sequestrated, unless the seller shows it complied with section 197. Both of you are jointly and severally liable for any employment claim that arose before the transfer. Dismissing someone because of the transfer is automatically unfair under section 187(1)(g). These rules are in sections 197 and 187(1)(g) of the Labour Relations Act, as substituted and inserted by the Labour Relations Amendment Act 12 of 2002.

What the agreement calls the deal does not decide this: the Constitutional Court has held that whether a business was transferred as a going concern turns on substance, not form. If the seller is insolvent, section 197A applies instead: see insolvent estate and liquidation auctions. Speak to a labour attorney before you tell your staff.

Leases, franchises, licences and contracts

• The lease. Most commercial leases need the landlord's written consent before they can be ceded and assigned to a buyer. The alternative is a new lease between the buyer and the landlord, which SARS accepts can still form part of a going concern sale. A short remaining term lowers the price. If you signed a personal suretyship for the lease, get the landlord's written release rather than assuming it falls away.
• A franchise. The Consumer Protection Act regulations require a franchise agreement to state the conditions for transferring it, so start with that clause, and expect the franchisor to vet the buyer. If the buyer signs a new franchise agreement, the franchisor must first give them a disclosure document at least 14 days before signing (CPA Regulations, regulation 3(1)).
• Licences and permits. A liquor licence, a trading or business licence, or a sector registration held in your name does not necessarily pass with the business. Check each one with the issuing authority.
• Customer and supplier contracts. Check for consent clauses. A key contract that cannot transfer changes the price.

Agreements are commonly made subject to conditions such as landlord consent, franchisor approval and the buyer's finance. Until they are met, you still run the business and, says SARS, remain responsible for its VAT.

Consents, notices and deadlines

Depending on who is selling and how large the business is, these may also apply. Your attorney confirms which.

Once a section 34 notice is published, a creditor of the business can demand immediate payment of a fixed debt that would otherwise fall due later. Have the cash, or an arrangement with those creditors, in place before the notice is published.

Keeping the sale confidential

A business is easiest to damage while it is for sale: staff look elsewhere, competitors tell your customers, suppliers tighten credit. Release information in stages:

1. Anonymous marketing. The sector, the region and the broad numbers, with nothing that identifies the business.
2. A signed non-disclosure agreement. Only then does the buyer learn the name and receive the information pack.
3. Proof of funds before the books. A buyer who cannot pay does not need your detailed financials.
4. Full due diligence once terms are agreed. Customer lists, pricing and margins come last, especially if the buyer is a competitor.

Staff records need care: the Protection of Personal Information Act allows personal information to be processed only where it is adequate, relevant and not excessive for the purpose, so share payroll by role first and names only when needed. Our business sales process works in these stages, and your staff hear it from you.

How a business is valued

There is no single formula. A buyer is paying for future profit, and every method is a way of estimating it and pricing the risk.

• Maintainable earnings. The usual starting point for a profitable owner-run business. Normalise the profit (a market salary for the owner, once-off costs removed), then apply a multiple that reflects the risk.
• Net assets. What the equipment, vehicles, stock and any property would fetch. This sets the floor, and it is often the real value of a business that makes little profit. Our valuations desk values plant, fleet and property in writing.
• Discounted cash flow. Forecast cash flows brought back to a present value. Used for larger businesses with reliable forecasts.

Stock is often handled separately, by a stock-take on the effective date. What moves the multiple is mostly on paper: two years of proper financials, how much the business depends on you, customer concentration, the lease term and whether the staff stay. Buyers also usually ask for a restraint of trade, because goodwill is worth little if you open next door.

When we appraise a business, we look at the financials, the lease, the asset register and the staff complement, and tell you what a buyer is likely to pay and why.

Going concern sale or share sale?

If the business is in a company, the buyer can also buy the shares instead. The two are different transactions:

A business sale leaves the company's past behind, which buyers like; the seller's tax can differ sharply between the two. Take advice on both.

Selling on auction or by private treaty

Both work, and the right choice depends on the business.

Auction tends to suit

• Sellers who need a firm date: retirement, emigration, a deceased estate, business rescue or liquidation (see our estates work).
• Businesses with a strong asset base or premises, where the floor value is easy for bidders to see.
• Sales where a public, competitive process protects the person selling, such as an executor or a practitioner.

Private treaty tends to suit

• Businesses that need a long due diligence or franchisor approval.
• Deals with staged payments or a handover period with the owner.
• Businesses where even anonymous public marketing carries a risk.

On auction the buyer is only known on the day, so the groundwork comes first: the landlord and franchisor positions, the valuation of accrued leave and severance pay under section 197(7) (where it applies) and how it adjusts the price, any section 34 notice timed to the transfer date, the information pack and the conditions of sale. For the zero rate to apply, the conditions of sale must carry the going concern terms, and they should say what happens if the successful bidder is not a VAT vendor, along with the deposit, any buyer's commission and the period to pay the balance. Bidders should do their due diligence before they bid, and a bidder who wants the zero rate should be registered for VAT, or have applied, before bidding. A public auction may name the business in the catalogue; the NDA then protects the information pack and the books. The reserve is your floor: see the reserve price explained, and our rules of auction.

We sell businesses both ways, recommend one on the first confidential call, and explain why. If the business comes with its premises, the property can be sold with it or separately through our property auctions. If it has closed, the equipment goes to auction on its own: see the plant and machinery auctions guide.