Buying or selling a business involves much more than agreeing on a price. The transaction may involve contracts, employees, leases, intellectual property, licences, equipment, stock, security interests and other rights and obligations that need to be dealt with before settlement.
For buyers, the aim is to understand exactly what is being acquired and the obligations that come with it. For sellers, it is important to clearly document what is being sold, the purchase price arrangements and what each party must do before and after settlement.
This guide explains some of the key legal issues involved in business sales and purchases in Australia.
Table of Contents
- Before Buying or Selling a Business
- Asset Sale vs Share Sale
- Legal Due Diligence
- The Business Sale Contract
- Employees, Leases and Intellectual Property
- Buying or Selling a Franchise Business
- Settlement and Handover
Before Buying or Selling a Business
Getting organised early can make a business transaction easier to manage and can help identify issues before the parties become committed to the deal.
A seller may need to gather information about:
- business contracts;
- commercial leases;
- employees and accrued entitlements;
- plant and equipment;
- stock;
- licences and permits;
- intellectual property;
- customer and supplier arrangements;
- PPSR registrations; and
- any other assets or rights being transferred.
A buyer should understand what is included in the sale and carry out appropriate legal, financial and commercial due diligence before proceeding.
The structure through which a buyer will acquire and operate the business should also be considered early. Legal structuring should be considered together with appropriate accounting and tax advice. You can read more about our business structuring services.
Asset Sale vs Share Sale
One of the first legal questions is what is actually being sold.
Asset Sale
In an asset sale, the buyer acquires specified assets used in the business rather than acquiring the shares in the company that owns the business.
Depending on the transaction, those assets might include:
- goodwill;
- business names;
- plant and equipment;
- stock;
- intellectual property;
- customer contracts;
- supplier contracts;
- licences or permits;
- telephone numbers;
- websites and domain names; and
- rights under a commercial lease.
The contract should identify the assets included and excluded from the transaction and address any consents, assignments or transfers required.
Share Sale
In a share sale, the buyer acquires some or all of the shares in the company that operates the business.
The company itself continues to own its assets and remains subject to its existing liabilities and obligations. This means the buyer will generally undertake detailed due diligence on the company before acquiring its shares.
Asset sales and share sales can have significantly different legal, accounting and tax consequences. Appropriate legal and accounting advice should be obtained before deciding which structure is suitable.
Legal Due Diligence
Legal due diligence helps a buyer understand the legal position of the business and identify matters that may need to be addressed before settlement.
The scope will depend on the particular transaction, but may include reviewing:
- the ownership of business assets;
- key customer and supplier contracts;
- commercial leases;
- employment arrangements;
- intellectual property;
- company records where a company is being acquired;
- licences, permits and approvals;
- PPSR registrations;
- existing contractual obligations; and
- other documents relevant to the business.
PPSR Searches and Security Interests
The Personal Property Securities Register, commonly known as the PPSR, records certain security interests over personal property.
A buyer may conduct PPSR searches as part of due diligence to identify registered security interests that may affect assets being acquired.
Where relevant, the business sale contract can require particular security interests to be released or dealt with as part of settlement.
Financial and Tax Due Diligence
Legal due diligence is only one part of assessing a business.
A buyer should obtain appropriate accounting, tax and financial advice about matters such as financial statements, profitability, taxation, working capital and the financial assumptions supporting the purchase.
The Business Sale Contract
The sale contract records the commercial terms agreed between the buyer and seller and sets out how the transaction is to proceed.
Depending on the deal, it may address:
- the purchase price;
- the deposit;
- assets included and excluded from the sale;
- stock and stocktake arrangements;
- adjustments at settlement;
- employees;
- the transfer or assignment of contracts;
- the commercial lease;
- intellectual property;
- conditions that must be satisfied before settlement;
- warranties given by the parties;
- restraint provisions;
- training or handover arrangements;
- PPSR releases; and
- post-settlement obligations.
The contract should reflect the actual commercial deal rather than relying on assumptions about what will transfer automatically.
Rise Legal assists buyers and sellers with business sales and purchases across Australia using fixed-fee proposals for defined legal work.
Restraint Provisions
A buyer may seek restraint provisions restricting certain competitive activity by the seller after settlement.
The enforceability of a restraint depends on its terms and the circumstances. Restraints should therefore be drafted for the particular transaction rather than treated as automatically enforceable.
Employees, Leases and Intellectual Property
Employees
Employee arrangements should be considered carefully as part of the transaction.
The contract may need to address matters such as:
- which employees will be offered employment by the buyer;
- the treatment of accrued employee entitlements;
- adjustments between the buyer and seller;
- employee records; and
- obligations applying to the transfer or termination of employment.
Employment consequences can vary depending on the circumstances and applicable workplace laws.
Commercial Leases
If the business operates from leased premises, the lease is often an important part of the transaction.
The transaction may require the landlord’s consent to an assignment of the existing lease, the grant of a new lease, or another arrangement allowing the buyer to occupy the premises.
The sale contract should address the relevant lease requirements and what happens if the required arrangements cannot be completed before settlement.
Intellectual Property
The parties should identify the intellectual property used by the business and determine what is being transferred.
This might include:
- registered trade marks;
- business names;
- logos;
- domain names;
- website content;
- software;
- copyright material; and
- confidential information.
Ownership does not necessarily transfer merely because control of the business changes. The contract should clearly address assignments, licences and other steps required to transfer or permit continued use of relevant intellectual property.
You can read more about our trade mark and intellectual property services.
Buying or Selling a Franchise Business
Additional requirements apply where the business being bought or sold is a franchise.
The current Franchising Code of Conduct is contained in the Competition and Consumer (Industry Codes—Franchising) Regulations 2024.
The Code regulates matters including disclosure, conduct before entering into or transferring franchise arrangements, cooling-off rights, dispute processes and certain terms of franchise agreements.
Good Faith
The Code requires parties to a franchise agreement to act in good faith towards each other in relation to matters arising under or in relation to the agreement and the Code.
The obligation also applies in certain dealings involving a prospective franchisee.
Disclosure and the 14-Day Consideration Period
Where a prospective franchisee is entering into a franchise agreement, the franchisor must provide prescribed documents, including the proposed franchise agreement and, unless an applicable opt-out provision applies, the disclosure document and a copy of the Code.
The franchisor must not execute the franchise agreement before the end of the 14-day consideration period.
That period runs from the latest relevant event specified by the Code. This can include the date on which the required documents are provided and, in some circumstances, a later changed franchise agreement or later earnings information.
Some minor changes or changes requested by the prospective franchisee do not restart the consideration period.
Disclosure Document Updates
The Code includes requirements for franchisors to update their disclosure documents in particular circumstances. Where section 21 applies, the disclosure document must generally be updated within four months starting on the first day of the relevant financial year.
Franchisor Legal Costs
The Code restricts the franchisor’s ability to require a franchisee to pay the franchisor’s legal costs relating to the franchise agreement.
A franchise agreement may require payment of a fixed amount for the franchisor’s reasonable and genuine legal costs of preparing, negotiating or executing the franchise agreement if the statutory requirements are satisfied, including that the fixed amount is specified in the agreement.
The Code also prohibits a franchise agreement from requiring the franchisee to pay costs incurred by the franchisor in relation to settling a dispute.
If you are considering purchasing a franchise, see our legal services for franchisees.
Settlement and Handover
Settlement is the point at which the transaction is completed in accordance with the contract.
The matters required at settlement vary from transaction to transaction and may include:
- payment of the balance purchase price;
- adjustments;
- transfer of business assets;
- delivery of documents and records;
- lease documentation;
- PPSR releases;
- transfer of intellectual property;
- stocktake adjustments;
- keys, passwords and access credentials; and
- other documents required under the contract.
Conditions Before Settlement
A business sale contract may make completion conditional upon particular events occurring.
Examples might include:
- landlord consent;
- finance approval;
- licence or regulatory approvals;
- franchisor consent;
- due diligence being completed where the contract provides for it; or
- other conditions agreed between the parties.
The contract should specify what must happen, when it must happen and the consequences if a condition is not satisfied.
After Settlement
Some obligations may continue after settlement.
These could include training or handover arrangements, delivery of records, final employee matters, transfer of accounts or licences, and other obligations agreed in the contract.
How Rise Legal Can Help
Rise Legal assists Australian business owners with the legal aspects of buying and selling businesses.
Depending on the transaction, our work can include:
- reviewing or preparing the business sale agreement;
- advising on contractual terms and conditions;
- legal due diligence;
- commercial lease matters connected with the transaction;
- intellectual property transfers;
- PPSR considerations;
- conditions precedent;
- settlement arrangements; and
- franchise documentation where applicable.
We provide fixed-fee proposals for defined legal work so that the scope and legal fees are agreed before work begins.
Contact Rise Legal to request a fixed-fee proposal for your business sale or purchase.
Frequently Asked Questions
What is the difference between an asset sale and a share sale?
In an asset sale, the buyer acquires specified assets of the business. In a share sale, the buyer acquires shares in the company that operates the business.
Because the company continues to exist following a share sale, its assets, liabilities and contractual obligations generally remain with the company. Each type of transaction therefore requires different due diligence and contractual considerations.
How long does a business sale or purchase take?
There is no standard timeframe. The timing depends on the complexity of the transaction and matters such as negotiations, due diligence, finance, landlord consent, licences, franchise approvals and other conditions that must be satisfied before settlement.
The proposed settlement date and any relevant conditions should be clearly documented in the sale agreement.
What legal due diligence should I do before buying a business?
The appropriate scope depends on the business being acquired.
Legal due diligence may include reviewing important contracts, lease arrangements, intellectual property, PPSR registrations, licences, employment-related documentation and other legal matters relevant to the assets or company being purchased.
Financial, tax and accounting due diligence should be undertaken with appropriately qualified advisers.
Does the Franchising Code apply when buying an existing franchise?
It can. Different Code requirements may apply depending on how the transaction is structured, including whether the buyer will enter into a new franchise agreement or an existing franchise agreement is being transferred.
The documents, consideration periods and cooling-off rights that apply should therefore be considered in the context of the particular transaction.
Can a franchisor require a franchisee to pay the franchisor’s legal costs?
The Franchising Code restricts when this can occur.
A franchise agreement may require the franchisee to pay a fixed amount for the franchisor’s legal costs of preparing, negotiating or executing the agreement if the amount and arrangement satisfy the requirements of section 38 of the Code.
The amount must be specified in the agreement, relate to the permitted legal services and not exceed the reasonable and genuine cost of those services.
Article by
Helen Kay, Principal Lawyer, Rise Legal
Helen Kay is the Managing Director and Principal Lawyer at Rise Legal, an Australian commercial and business law firm advising business owners, franchisors and franchisees across Australia. Helen practises in commercial law, franchising, business contracts, business sales and purchases, trade marks and related business law matters.
Disclaimer
This article provides general information only and does not constitute legal advice. It does not take into account your specific circumstances. Laws and regulatory requirements may change, so you should obtain legal advice relevant to your situation before acting on the information contained in this article. Liability limited by a scheme approved under professional standards legislation.
Share this article using the links below:
