Buying a Business in NSW: Legal Checks, Contracts and Employees
Buying an established business can provide customers, equipment, systems and revenue from day one. It can also mean taking on arrangements you did not negotiate and risks you may not immediately see. Due diligence is the process of finding out what you are actually buying before becoming committed to the transaction.
What are you buying?
A business purchase may involve assets, goodwill, stock, intellectual property, a lease, customer contracts and sometimes interests in a company. These are not interchangeable structures. The contract must identify what is included, what is excluded and how responsibility for liabilities is allocated. The purchasing structure can affect tax, employees and ongoing obligations, so legal and accounting advice should be coordinated.
Check the financial position
Ask your accountant what records are needed to assess earnings, cash flow, liabilities and the sustainability of the business. Historical revenue is not a guarantee of future performance. A sensible review may examine several years of financial information, the customer base, recurring costs, debts and working capital needs.
Review the sale contract carefully
The contract should identify the purchase price and adjustments, assets, stock valuation, transfer dates, conditions precedent, warranties and restraints where applicable. Review the circumstances in which either party can terminate and what happens if a condition is not met. Documents and approvals needed for completion should be identified early.
Is the premises lease transferable?
If the business trades from leased premises, the right to occupy the location may be essential to its value. Check the remaining lease term, renewal options, permitted use, outgoing costs and assignment requirements. A buyer may need the landlord's consent to an assignment or a new lease. The seller's agreement to sell does not itself guarantee that the landlord will approve the proposed arrangement.
What happens to existing employees?
Employment obligations are an area where assumptions can become expensive. The outcome depends on the transaction and whether there is a transfer of business under employment law. Questions may include which employees will be offered work, whether service is recognised, accrued leave and applicable awards or enterprise agreements. Some entitlements transfer or must be recognised, while other rules allow specific exceptions.
What other matters deserve attention?
Consider licences and approvals, key supplier and customer contracts, intellectual property ownership, privacy and data handling, equipment condition, insurance, outstanding disputes and any required third-party consent. A profitable business may still be difficult to operate if important rights cannot be transferred.
Before you sign
Agree on the information you need, allow time for advisers to review it and ensure any due diligence or finance conditions are documented correctly. If the purchase requires a lease assignment or specialist approval, clarify the sequence before setting a completion date.
Dawson Pouwhare can assist with the legal documentation and due diligence involved in buying a business.
Legal disclaimer: This article contains general information about Australian and NSW law and is not legal advice. It may not reflect changes in the law or your individual circumstances. You should obtain advice about your situation before acting on this information.
