Letter of Intent — Business Purchase (New Zealand)

A Letter of Intent — Business Purchase in New Zealand sets out a party's intentions and the proposed terms for a transaction before a binding agreement is entered, consistent with the Companies Act 1993.

The LOI is not a binding contract for the sale itself — it is a framework document that aligns the parties on core commercial terms, establishes the structure of the deal (asset sale or share sale), and typically includes binding obligations around exclusivity and confidentiality. The High Court of New Zealand and District Court both have jurisdiction to determine disputes about whether an LOI creates enforceable obligations.

For transactions involving overseas buyers, the Overseas Investment Act 2005 and Overseas Investment Office (OIO) may impose consent requirements, particularly for acquisitions of significant business assets or sensitive New Zealand land. Compliance with the Overseas Investment Act 2005 should be noted in the LOI as a condition precedent where applicable.

The Companies Office maintains the public register of New Zealand companies under the Companies Act 1993, and the LOI should correctly identify the target company by its registered name and company number. Where the business operates licensed premises, the Sale and Supply of Alcohol Act 2012 may require a new licence application, which should also be flagged as a condition. Inland Revenue (IRD) implications — including GST on the going concern, income tax, and PAYE — should be considered when structuring the transaction.

The forms-legal.com Letter of Intent — Business Purchase (New Zealand) template provides a structured starting point that covers the key commercial terms required for a New Zealand business acquisition.

Section 10 of the Companies Act 1993 governs the registration of New Zealand companies with the Companies Office. Section 34 of the Contract and Commercial Law Act 2017 provides the general framework for contractual obligations. For transactions where employees transfer with the business, Section 69OI of the Employment Relations Act 2000 establishes employee continuity of employment obligations in asset sales. Section 6 of the Overseas Investment Act 2005 defines 'overseas person' for the purpose of determining whether OIO consent is required. Where the target business holds a liquor licence, Section 135 of the Sale and Supply of Alcohol Act 2012 requires a new licence application on change of ownership. For GST purposes on a going concern sale, Section 11(1)(mb) of the Goods and Services Tax Act 1985 provides the zero-rating rules applicable where both parties are GST-registered and agree in writing. These statutory provisions should be considered when structuring the transaction at the LOI stage to avoid costly surprises in the formal Sale and Purchase Agreement.

A Letter of Intent for Business Purchase in New Zealand is used at the early stage of a business acquisition process, after initial discussions but before the parties are ready to commit to a full Sale and Purchase Agreement. Using an LOI at this stage serves several important functions.

Recording agreed commercial terms: Once the parties have agreed on a headline purchase price in NZD and a basic deal structure, the LOI documents those terms so both parties are working from the same understanding before legal costs escalate.

Securing exclusivity: The LOI gives the buyer a window — typically 20 to 90 days depending on deal complexity — during which the seller agrees not to solicit or entertain offers from other parties. Without an exclusivity clause, the seller could continue negotiations with competing buyers while the buyer spends money on due diligence.

Framing due diligence scope: The LOI should define the scope and period of the buyer's due diligence — covering financial records, material contracts, employee entitlements under the Employment Relations Act 2000, property leases, intellectual property, and any regulatory licences held by the business.

Confidentiality: Where a separate non-disclosure agreement has not been signed, the LOI can include a confidentiality undertaking covering the buyer's use of information disclosed during due diligence.

Signalling serious intent: Banks and investors providing acquisition finance often require evidence that the buyer has an executed LOI with the target before releasing funds for due diligence costs.

The LOI is used before the formal Sale and Purchase Agreement is drafted. Once due diligence is complete and conditions are satisfied, the parties proceed to negotiate the full SPA with their respective solicitors.

Section 69OI of the Employment Relations Act 2000 requires that employees are offered continuity of employment by the incoming employer in an asset sale of a business. The LOI should address whether this obligation applies. Section 67 of the Contract and Commercial Law Act 2017 sets out the general requirements for enforceable contracts in New Zealand. Where the business holds licensed premises, Section 135 of the Sale and Supply of Alcohol Act 2012 requires a new licence application — this should be flagged as a condition in the LOI. For overseas buyers, Section 6 of the Overseas Investment Act 2005 and the Overseas Investment Regulations 2005 determine whether Overseas Investment Office consent is required. The LOI should always specify a deadline for execution of the formal Sale and Purchase Agreement, as open-ended preliminary agreements create uncertainty. The High Court of New Zealand and District Court both have jurisdiction to determine disputes about whether an LOI creates binding obligations under the Contract and Commercial Law Act 2017.

A Letter of Intent for Business Purchase in New Zealand should include the following key elements to adequately protect both buyer and seller and to serve as a useful framework for the formal Sale and Purchase Agreement.

Party identification: Full legal names, addresses, and (for companies) Companies Office registration numbers of the buyer and seller. Where the buyer is acquiring through a nominee company to be incorporated, this should be noted.

Business description: A clear description of the business being acquired, including its trading name, registered office, principal activities, and whether the acquisition is of assets or shares.

Purchase price: The proposed purchase price in New Zealand dollars (NZD), together with any price adjustment mechanism (e.g., working capital adjustment, deferred consideration, earnout based on post-acquisition financial performance).

Transaction structure: Whether the acquisition is structured as an asset purchase (buyer acquires specific business assets) or a share purchase under the Companies Act 1993 (buyer acquires all shares in the target company). The structure affects GST under the Goods and Services Tax Act 1985, income tax under the Income Tax Act 2007, and employee continuity obligations under the Employment Relations Act 2000.

Conditions precedent: Key conditions to be satisfied before the SPA is signed — typically including satisfactory completion of due diligence, obtaining finance approval, key employee retention, any required Overseas Investment Office consent under the Overseas Investment Act 2005, and any landlord consent for assignment of commercial leases.

Due diligence period: The period and scope of the buyer's right to investigate the business — financial records, IRD compliance, material contracts, employment agreements, intellectual property, and any regulatory licences.

Exclusivity: A binding clause preventing the seller from negotiating with or soliciting other buyers for a defined period.

Confidentiality: An obligation on both parties to keep the terms of the LOI and all due diligence information confidential.

Timeline for SPA: An indicative timetable for completing the formal Sale and Purchase Agreement.

Binding and non-binding provisions: A clear statement identifying which clauses are binding (exclusivity, confidentiality) and which are non-binding (purchase price, structure, conditions).

The forms-legal.com Letter of Intent — Business Purchase (New Zealand) template includes all of these elements and is suitable for small-to-medium business acquisitions governed by New Zealand law.

GST and tax treatment: Section 11(1)(mb) of the Goods and Services Tax Act 1985 zero-rates the supply of a going concern where both parties are GST-registered and agree in writing. The LOI should note the parties' intention regarding GST treatment. Under Section CB 1 of the Income Tax Act 2007, gains on business asset sales may be assessable income, and the allocation of purchase price between different asset classes (goodwill, plant, stock) has tax consequences for both parties.

Employee matters: Section 69OI of the Employment Relations Act 2000 requires the incoming buyer to offer employment to all employees on the same terms where the transaction is an asset sale. Intellectual property: Where the business owns registered trade marks under the Trade Marks Act 2002 or patents under the Patents Act 2013, these should be identified in the LOI asset schedule. Regulatory licences: Licences held by the business — including a liquor licence under the Sale and Supply of Alcohol Act 2012, financial service provider registration under the Financial Service Providers (Registration and Dispute Resolution) Act 2008, or other regulatory consents — should be listed as conditions to be transferred or re-applied for. The forms-legal.com Letter of Intent — Business Purchase (New Zealand) template includes all standard provisions for small-to-medium New Zealand business acquisitions.