What Does “Buying A Business” Actually Mean In Australia?
When people talk about “buying a business”, they often mean different things.
In Australia, the sale usually happens in one of two ways:
- Asset sale: you buy specific assets of the business (like stock, equipment, IP, customer lists and goodwill) and you typically don’t take on the seller’s company itself.
- Share sale: you buy the shares in the company that owns the business, meaning you step into ownership of the existing company (and its history).
Neither approach is automatically “better”. The right structure depends on your risk tolerance, what licences or contracts need to transfer, and whether you’re comfortable taking on legacy liabilities. It can also have different tax and accounting outcomes, so it’s worth speaking with your accountant or tax adviser early (this article is general information only and not tax advice).
Why The Structure Matters
Choosing an asset sale vs share sale changes key legal and commercial points, including:
- what liabilities you might inherit (including unknown ones)
- what contracts transfer automatically vs need third-party consent
- what happens with employees (and their entitlements)
- how licences and permits are handled
- how the purchase price is allocated (important for accounting and tax - your accountant can help you assess the implications for your situation)
This is one of the reasons we usually suggest getting advice early, before you agree on “handshake terms”. It’s much easier (and cheaper) to structure things correctly up front than to renegotiate later.
Step-By-Step Due Diligence Checklist (Before You Sign Anything)
Due diligence is your chance to verify that the business is what the seller says it is, and to identify risks before you’re locked in.
In practice, buying a business in Australia usually involves a mix of:
- financial due diligence (typically with your accountant or tax adviser - this article isn’t financial or tax advice)
- legal due diligence (contracts, liabilities, ownership, disputes, compliance)
- operational due diligence (systems, key staff, suppliers, customer retention)
If you’re doing a formal legal review, a Legal Due Diligence Package can help you methodically cover the risk areas that often get missed.
1) Confirm What You’re Actually Buying
Ask for a clear list of what’s included and excluded. For an asset sale, this is crucial.
Common assets to confirm include:
- stock (and how it will be valued at settlement)
- plant and equipment
- website domain, social media accounts, phone numbers
- business name and branding
- intellectual property (logos, software, content, designs)
- customer database and goodwill
Make sure you know what’s not included too (for example, the seller might keep a key domain name or a particular supplier relationship).
2) Check The PPSR And Security Interests
A major risk when buying equipment, vehicles or other high-value assets is that someone else has a registered security interest over them.
In plain terms, if a lender or supplier has “security” over assets and it isn’t dealt with properly at settlement, you can end up paying for assets that can still be repossessed.
That’s where a PPSR search comes in. The Personal Property Securities Register (PPSR) is the national register that records security interests in personal property.
If you’re unfamiliar with it, the PPSR is worth understanding early in the process, and you may also come across existing finance documentation like a General Security Agreement.
Many “businesses” are really a bundle of contracts and relationships. If those relationships don’t transfer, the value can collapse overnight.
Ask for copies of (at minimum):
- major customer agreements (especially recurring revenue contracts)
- supplier agreements (pricing, minimum orders, exclusivity)
- distribution or reseller arrangements
- software and platform agreements (including whether accounts can be assigned)
- finance and leasing agreements
Look closely for:
- assignment clauses (do you need consent to transfer?)
- change of control clauses (especially in share sales)
- termination rights (can the other party exit easily?)
- non-competes or restraints that might limit your future plans
4) Confirm Lease And Premises Position (If It’s A Physical Business)
If the business relies on a location (retail store, warehouse, office, café, gym, clinic), the lease can be one of the biggest make-or-break items.
Key questions to work through:
- Is there a current written lease, and when does it expire?
- Does the landlord consent to an assignment of lease?
- Are there outstanding breaches, rent arrears or disputes?
- What are the outgoings and make-good obligations?
- Are there upcoming rent reviews or market reviews?
If the lease cannot be transferred (or the landlord refuses consent), you may be buying a business without the premises it depends on.
5) Check Employees, Contractors And Entitlements
If the business has staff, you’ll want to understand exactly who is engaged, on what terms, and what liabilities might come with them.
Ask for:
- a staff list (role, start date, pay rate, hours, leave balances)
- copies of employment and contractor agreements
- any workplace policies and procedures
- details of any current disputes, performance management or claims
If you’re keeping staff on, having properly documented terms (like an Employment Contract) can reduce confusion around duties, confidentiality, notice periods and expectations after the transition.
Employee entitlements can be particularly important in share sales, because the employing entity usually doesn’t change and liabilities commonly remain with the same company. In asset sales, outcomes can vary depending on how the deal is structured, whether employment offers are made to transferring employees, and whether there is any agreement about recognising prior service and handling accrued entitlements - so it’s important to get specific advice for your situation.
6) Confirm Licences, Permits And Regulatory Compliance
Some businesses cannot legally operate without specific licences or permits. Examples include regulated industries, food businesses, health services, building and trades, childcare, and certain online services.
Make sure you know:
- what licences are required
- whose name the licence is in
- whether it can be transferred or you need a new application
- what compliance records exist (and any notices or investigations)
If the value of the business depends on being able to operate from day one, your contract should address how compliance and licensing will be handled between signing and settlement.
How Should You Structure The Deal To Manage Risk?
Once you’re comfortable with the opportunity, the next step is making sure the legal structure matches what you’re trying to achieve (and protects you if something goes wrong).
Heads Of Agreement Vs Sale Contract
You may start with a heads of agreement (sometimes called a term sheet or letter of intent). This can be useful to capture the commercial deal, but it can also create risk if it’s poorly drafted or accidentally binding.
Before you pay a deposit or start announcing the deal, make sure you understand:
- what parts (if any) are binding
- the due diligence timeframe and scope
- the conditions precedent (what must happen before completion)
- what happens if the deal doesn’t proceed
Key Conditions To Consider Including
Well-structured contracts commonly include conditions like:
- finance approval (if you’re relying on a loan)
- lease assignment and landlord consent
- transfer/assignment of key contracts
- transfer of licences (or confirmation you can obtain new ones)
- release of security interests (so you don’t inherit PPSR problems)
- training and handover from the seller
Conditions aren’t “just legal filler”. They’re the practical tools that let you walk away (or renegotiate) if a key part of the business can’t be delivered.
Price Adjustments, Stocktakes And Earn-Outs
Many disputes after settlement come down to money mechanics that weren’t clearly documented.
Common mechanisms include:
- stock valuation: set a clear method (and when the stocktake occurs)
- working capital adjustments: more common in larger deals, but sometimes relevant
- earn-outs: part of the purchase price depends on future performance
- retention amounts: you hold back part of the price until certain obligations are met
If you’re a startup buyer, you might be tempted to keep this “simple”. That’s understandable, but simplicity should not come at the cost of clarity. Your accountant or tax adviser can also help you understand how the purchase price mechanics and allocation may affect your tax and reporting position (this article is not tax advice).
What Legal Documents Should Be In Place For The Sale?
Buying a business in Australia usually involves more than one document. Even “simple” transactions often need supporting paperwork to make sure ownership transfers cleanly and your risks are controlled.
Depending on the deal, you may need:
- Business Sale Agreement: the core contract covering price, inclusions, conditions, warranties and completion steps.
- Asset transfer documents: for IP, domain names, business name, plant and equipment, customer databases and other assets.
- Lease assignment documents: if the premises are transferring with the business.
- Restraint of trade / non-compete: to stop the seller setting up next door and taking customers (subject to enforceability and reasonableness).
- Confidentiality (NDA): often signed early so you can review sensitive financials and customer information.
- Training and handover schedule: to ensure you’re not left without operational knowledge.
- Announcements and communications plan: for staff, key customers, suppliers and the public (especially where consent is needed).
If you want a bundled approach that covers the core sale documentation and practical steps, a Business Purchase Package can help keep things organised and settlement-ready.
Don’t Forget The “Day One” Legal Documents
The sale contract gets you ownership. But you’ll often need fresh legal documents to operate properly after handover.
Common examples include:
- Customer terms: updated terms that reflect how you will deliver and price your products or services.
- Website legal terms: if you’re running a website or online store.
- Privacy documentation: if you collect personal information (for example via email marketing, bookings or online checkout), having a Privacy Policy is often essential.
- Company governance: if you’re buying through (or setting up) a company, a Company Constitution can help clarify internal rules and decision-making.
- Founder/investor arrangements: if you’re buying with a co-founder or bringing investors in later, a Shareholders Agreement can reduce disputes about control, exits and future funding.
Common Legal Traps When Buying A Business In Australia (And How To Avoid Them)
Most small business purchase disputes come from the same handful of issues. If you know what they are, you can usually plan around them.
Trap 1: Relying On Verbal Promises
It’s common for sellers to make helpful promises like “the supplier will definitely stay on” or “the landlord is fine with the transfer”.
Unless it’s documented and built into the contract (as a condition, warranty or completion step), you may have very little protection if it doesn’t happen.
Trap 2: Missing Hidden Liabilities
Some liabilities are obvious (like unpaid invoices). Others are harder to spot, such as:
- customer complaints or warranty obligations
- employment underpayments
- tax liabilities (more relevant in share sales - speak to your accountant or tax adviser for advice on your situation)
- unresolved disputes with suppliers
- security interests registered on the PPSR
This is why due diligence is not just a box-ticking exercise. It’s your chance to decide whether the risk is acceptable, and if so, how you want it allocated in the contract.
Trap 3: Not Planning The Transition
Even a great business can stumble during handover.
Try to document (and contractually secure) practical transition items like:
- training hours and duration
- introduction to key customers and suppliers
- handover of passwords, systems and accounts
- staff communications and retention strategy
If you’re buying a business for its goodwill, your ability to keep relationships stable during the transition is a big part of protecting what you paid for.
Trap 4: Confusing “Buying The Name” With Owning The Brand
Buying the business name does not automatically mean you own all brand-related intellectual property rights in the way you expect.
Make sure the contract clearly deals with:
- the business name (and who controls the registration)
- trade marks (if any exist)
- logos, designs, content and marketing assets
- domain names and social media accounts
If the seller has never properly documented ownership of key assets (for example, a designer created the logo but never assigned rights), you may need extra documents to avoid future disputes.
Key Takeaways
- Buying a business in Australia is usually either an asset sale or a share sale, and the structure will affect your liabilities, contracts and transition plan.
- Strong due diligence should cover the PPSR, key contracts, employees, licences, premises/leases and any disputes or compliance issues.
- Your sale contract should include clear conditions (like finance, lease consent and contract transfers) so you’re not forced to proceed if something critical falls over.
- Make sure the documents cover the practical “handover” items, not just price and settlement, so the business can operate smoothly from day one.
- After settlement, you’ll often need updated operational documents (employment terms, privacy documentation, customer terms, and internal governance documents) to run the business safely.
If you’d like help buying a business in Australia, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
