Business Sale & Purchase NSW

Buying or selling an established business can involve much more than agreeing on a price. The transaction may affect premises, employees, licences, contracts, intellectual property, stock, equipment, tax and existing security interests. Careful preparation helps both parties identify what is actually being transferred, allocate risk clearly and avoid preventable delays at settlement.

This general checklist outlines issues commonly considered in a business sale in New South Wales. The appropriate structure and documents depend on the business, the parties and the transaction.

1. Identify exactly what is being sold

One of the first questions is whether the transaction is an asset sale or a sale of shares in a company.

• Asset sale: the buyer acquires specified assets and rights, which may include goodwill, plant and equipment, stock, intellectual property, customer contracts and the benefit of a lease.
• Share sale: the buyer acquires shares in the company that operates the business. The company generally continues to own its assets and remain responsible for its liabilities, so the buyer’s due diligence usually extends to the company’s history and obligations.

The sale contract should identify the included and excluded assets precisely. Items that are leased, financed, licensed or personally owned by a proprietor should not be assumed to belong to the business.

2. Begin due diligence before committing

A buyer should investigate the business before becoming unconditionally bound. The Australian Government’s guidance on buying an existing business recommends reviewing financial records, operations and legal documents, including licences, contracts, leases, assets, inventory and liabilities.

Depending on the transaction, due diligence may include:

• financial statements, tax returns, BAS records and cash-flow information;
• customer concentration, recurring revenue and material supplier arrangements;
• ownership and condition of equipment, stock and other assets;
• leases, licences, permits and regulatory approvals;
• employment arrangements and accrued entitlements;
• litigation, complaints, warranties and contingent liabilities;
• company, trust or partnership records;
• intellectual property, domain names, websites and social-media accounts; and
• privacy, cybersecurity and data-handling practices.

A seller can make the process more efficient by organising accurate records early and identifying information that should only be disclosed under a confidentiality agreement.

3. Record the commercial deal clearly

A heads of agreement or term sheet can record the main commercial understanding before the detailed contract is prepared. It should state whether it is intended to be binding, non-binding or binding only for selected provisions such as confidentiality and exclusivity.

The formal sale contract commonly addresses:

• the parties and the assets or shares being sold;
• the purchase price, deposit and payment arrangements;
• adjustments for stock, employee entitlements, prepaid expenses or other items;
• warranties and disclosures about the business;
• conditions that must be satisfied before completion;
• the conduct of the business between exchange and settlement;
• restraints, confidentiality and protection of goodwill;
• default rights, indemnities and limitations of liability; and
• the documents and actions required at settlement.

Contract terms should reflect the particular transaction. A precedent or generic online agreement may not allocate the risks the parties actually negotiated.

4. Deal with the business premises

If the business operates from leased premises, the buyer may need an assignment of the existing lease or a new lease. Landlord consent, financial information, guarantees, insurance and legal documentation can take time. The parties should establish early who will obtain consent, pay the landlord’s costs, provide security and satisfy any required refurbishment or make-good obligations.

The sale contract should also address what happens if acceptable premises arrangements are not approved before settlement. Our commercial leasing practice assists with lease reviews, assignments and related documentation.

5. Address employees and entitlements

The seller and buyer should decide which employees, if any, will be offered employment by the buyer and how accrued entitlements will be treated in the price and contract.

A sale may constitute a transfer of business under the Fair Work Act. The Fair Work Ombudsman explains that this can affect the industrial instruments and entitlements applying to transferring employees. Notice, redundancy, continuity of service, leave, superannuation and employee-record obligations require transaction-specific consideration.

Employment offers and terminations should be coordinated carefully and should not be left until settlement day. See our information about contractor and employee arrangements.

6. Confirm contracts, licences and approvals can transfer

Important customer, supplier, franchise, distribution, software and equipment agreements may require third-party consent before assignment. Some licences and permits cannot be transferred and must instead be obtained by the buyer.

The parties should identify essential approvals early and decide whether each is a condition of settlement. Continuing to trade without a required licence or contractual consent can create substantial operational risk.

7. Protect intellectual property and digital assets

A transaction may include a business name, trade marks, copyright, confidential information, telephone numbers, domain names, website content, email accounts and social-media profiles. The contract should identify each asset, confirm ownership and prescribe how control will be transferred.

A business name registration does not itself confer ownership of a trade mark. Buyers should also consider whether software, photographs, databases and marketing materials are owned by the seller or used under licence.

8. Search for security interests

Equipment, stock, intellectual property and other personal property may be subject to registered security interests. The Personal Property Securities Register allows searches for registered interests and produces a search certificate.

Appropriate PPSR searches should be performed using the correct identifiers and close to settlement. Where registrations exist, the contract and settlement process may need to require releases or amendments. A clear search result does not replace broader investigation into title, finance and ownership.

9. Obtain tax and accounting advice

The parties should obtain advice about GST, capital gains tax, income tax, duty where relevant, apportionment of the price and the treatment of stock and employee entitlements.

Some business sales may qualify as a GST-free supply of a going concern, but the outcome is not automatic. The statutory requirements include a supply for consideration, a GST-registered or required-to-be-registered recipient, a written agreement that the supply is of a going concern, the supply of everything necessary for continued operation, and operation of the enterprise until completion. The structure and wording should be reviewed by the parties’ legal and tax advisers before the contract is signed.

10. Plan settlement and the handover

A detailed settlement checklist can allocate responsibility for payments, releases, consents, keys, passwords, records, employee information, notices to customers and suppliers, stocktake and delivery of signed documents.

The parties should also agree on post-settlement assistance, access to records, collection of outstanding debts, honouring of gift cards or warranties, and how public announcements will be handled. Ambiguity at handover can interrupt trade even when the legal settlement has occurred.

Buyer checklist

• Confirm the buyer entity and funding arrangements.
• Define the assets, rights and liabilities being acquired.
• Complete financial, legal and operational due diligence.
• Review premises arrangements and required consents.
• Check employees, entitlements and applicable industrial instruments.
• Verify ownership and transferability of key assets, IP and contracts.
• Conduct appropriate company, title and PPSR searches.
• Obtain independent tax and accounting advice.
• Make critical approvals and finance conditions of the contract where appropriate.
• Prepare a practical settlement and transition plan.

Seller checklist

• Organise accurate financial, corporate and operational records.
• Identify the assets being sold and any encumbrances or exclusions.
• Protect confidential information during negotiations.
• Review the lease and material contracts for consent requirements.
• Prepare employee information and calculate relevant entitlements.
• Identify licences, registrations and digital assets requiring action.
• Review warranties and disclosures carefully.
• Coordinate releases of security interests and settlement documents.
• Obtain tax advice before agreeing to the transaction structure.
• Plan the handover and any agreed transition assistance.

How Russell Kelly & Associates can assist

Russell Kelly & Associates advises on business and commercial transactions, including sale contracts, due diligence, business structures, leases and related agreements. Learn more about our business and commercial law services and company, trust and partnership advice, or contact our Norwest office to discuss your transaction.

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Legal disclaimer: This article provides general information only and is not legal, tax, accounting or financial advice. It does not take account of your circumstances and should not be relied on as a substitute for advice about a particular transaction. Laws, administrative guidance and commercial circumstances can change. Obtain independent professional advice before signing or acting on any business-sale document.