Buying a business: three legal checks that can change the deal

Buying a business can look like a good investment on paper. Before you commit, you need to know whether the assets, people and agreements behind its revenue will still be there after settlement. Legal due diligence tests those assumptions and helps you decide what needs to change in the deal.

1. Know exactly what you are buying

In an asset sale, you buy the assets the business sale contract identifies. They may include equipment, a trading name, intellectual property and other rights. Check what the seller owns, what is included and what must be transferred separately, for example trading stock.

In a share sale, you buy shares in the company that operates the business. The company continues to hold its assets and obligations. That makes its contracts, debts, disputes and history especially important to examine.

The distinction is mostly practical. A valuable website may be owned by someone other than the seller. A customer contract may need consent to transfer, or may contain a change-of-control clause. If you discover either issue late, you may be negotiating for a different business from the one you thought you were buying.

2. Check what the business needs to keep trading

Start with the things that would be hard to replace after settlement:

• Premises: Can you continue to use the site, and does the lease require the landlord’s consent or a new agreement?
• Contracts: Which customer and supplier agreements matter most, and can they continue after the sale?
• People: Who is essential to the operation, and what employment obligations or transfer-of-business questions do you need advice on?
• Brand and systems: Who owns the name, domain, software and other intellectual property like trade marks? Will you have the licences and access needed from day one?

For each item, identify what evidence you have, who must give consent and when it is needed. “We’ll sort it out after settlement” is a risky answer if that item is central to the business you are paying for.

3. Turn what you find into a decision about the deal

Searches and documents matter because of what they tell you to do next. An ASIC register search can help confirm the company’s recorded details. A PPSR search can identify registered security interests over personal property. Neither replaces checking the actual assets and transaction documents. Financial records, tax issues and employment records also need review by the appropriate advisers.

If a key lease cannot be assigned without consent, you may need that consent before completion. If an asset’s ownership is uncertain, you may need evidence of title or a change to the price or asset list. A known liability may call for targeted contractual protection. Sometimes the sensible decision is to take more time, change the structure or decide not to proceed.

Keep a short record of each significant finding, the document that supports it, its effect on the business and the response you want in the contract. It gives your advisers and the seller a clear basis for resolving the points that could change the deal.

Before you sign

Know which records are still missing and which transfers, releases or consents must happen before settlement. If a critical point cannot be checked, treat it as an open risk—not as a clean result.

If you are considering buying a business, speak with H+A Legal about the transaction before you commit to terms that leave important risks unresolved.

This article is general information only and not legal or tax advice. You should obtain advice specific to your circumstances.