Legal Due Diligence Checklist For Buying A Business In Australia

Buying an existing business can feel like a shortcut to growth.

You’re stepping into established revenue, existing customers, supplier relationships, and (hopefully) a system that already works.

But the part that catches many Australian SMEs out is this: when you buy a business, you can also inherit problems you didn’t plan for - messy contracts, unpaid staff entitlements, locked-in leases, disputes, regulatory issues, or equipment that isn’t actually owned by the seller.

That’s why doing proper business due diligence matters. It’s the process of checking what you’re really buying before you commit.

Below, we’ll walk you through a practical legal checklist for due diligence when buying a business, written for small business buyers who want clarity (not legal jargon) and a process you can actually follow.

What Is Business Due Diligence (And Why It’s Worth Doing)?

Business due diligence is the investigation you do before you sign (or before you go “unconditional”) on a business purchase.

Think of it as verifying the seller’s claims and uncovering risks so you can:

• confirm the business is what it appears to be;
• understand what you’re buying (and what you’re not);
• identify legal, operational, and financial red flags early;
• negotiate better terms (price, warranties, indemnities, restraints, handover support); and
• avoid costly surprises after settlement.

In practice, due diligence usually sits across a few “lanes”:

• Legal due diligence: contracts, ownership of assets, disputes, leases, compliance, employees, IP and licences.
• Financial due diligence: revenue, expenses, liabilities, tax, cashflow quality. (It’s usually worth getting an accountant/tax adviser involved here.)
• Commercial due diligence: customers, suppliers, competition, operations, systems, scalability.

This article focuses on the legal side (with a practical SME lens), because legal issues are often the ones that are hardest to spot until they become expensive. It’s general information only (not legal, financial or tax advice) - the right checks for your deal will depend on the business, the industry, and whether you’re doing an asset sale or a share sale.

Before You Start: Get Clear On The Deal You’re Actually Doing

A lot of “due diligence stress” comes from not being clear on the structure of the deal early.

In Australia, most small business sales are either:

1) Asset Sale (Most Common For SMEs)

You buy selected business assets (for example: equipment, stock, customer lists, goodwill, IP), and the seller keeps the company/entity.

This structure can reduce your exposure to historic liabilities (depending on how it’s done), but you need to be very clear about:

• what assets are included vs excluded;
• what contracts transfer (and whether consent is needed); and
• what liabilities you are taking on (if any).

It’s common for the purchase terms to be documented in an Asset Sale Agreement.

2) Share Sale (Buying The Company Itself)

You buy the shares in the company that owns the business.

That means the company stays the same, just with a new owner - and it may carry historic liabilities (known or unknown).

Share sales can be clean in some cases, but your due diligence needs to be tighter because you’re buying the entity “as is”, not just selected assets.

3) “Heads of Agreement” And Deal Terms Upfront

Before you pay a deposit or commit to a timeline, it can help to document key commercial points (price, inclusions, restraint, handover period, finance conditions, due diligence conditions, lease assignment) in a Heads of Agreement.

This isn’t always essential, but it can stop misunderstandings later when you move into the full sale agreement.

A Practical Legal Checklist For Due Diligence When Buying A Business

Here’s a practical checklist you can work through. You won’t always need every item - but the aim is to help you identify the big risk areas and ask better questions.

1) Confirm Who Owns What (And That It Can Be Sold)

Start with the basics: does the seller actually own the assets they’re trying to sell?

Ask for (and verify) evidence of ownership for key assets, such as:

• Equipment and plant (purchase invoices, serial numbers, lease/hire agreements)
• Vehicles (registration, finance encumbrances)
• Stock (stocktake method, write-offs, obsolete stock)
• Business name (who holds it)
• Website domain and hosting accounts
• Phone numbers (who controls the service)
• Software accounts (whether they are transferable)

If something is leased, financed, or owned by a third party, you’ll want to know early - because “included in the sale” may not mean “can legally be transferred to you”.

2) Check Security Interests (Including PPSR)

This is one of the most overlooked parts of business due diligence.

In simple terms, a lender or supplier may have a registered security interest over business assets - meaning they may have rights to repossess those assets if debts aren’t paid.

In Australia, security interests over many types of personal property are recorded on the Personal Property Securities Register (PPSR). If you don’t check it, you can end up paying for assets that someone else has a claim over.

A good starting point is understanding PPSR basics, then running the right searches (serial-number searches for certain assets like vehicles, and grantor searches where relevant). If you’re buying equipment or vehicles, it’s worth being methodical.

Where finance is involved, you may also see documents like a general security agreement, which can cover broad categories of assets (not just one item of equipment).

3) Review The Business’s Key Contracts

Contracts are where value (and risk) lives.

You want to know what contracts exist, whether they can transfer, and whether they’ll still be commercially workable once you’re the owner.

Common contracts to request and review include:

• Customer agreements (major clients, ongoing service arrangements, refund obligations)
• Supplier and distributor agreements (pricing, minimum orders, exclusivity terms)
• Online platform terms (if the business runs through an online marketplace)
• Software subscriptions (termination rights, data access, who owns the data)
• Equipment leases / rentals (hidden ongoing costs)
• Marketing agreements (agency retainers, minimum spend commitments)

Practical questions to ask as you read:

• Can this agreement be assigned to a buyer, or does it need consent?
• Are there termination rights triggered by a “change of control” or sale?
• Are there any exclusivity clauses that limit growth or alternative suppliers?
• Are there “evergreen” renewals that lock you in unless you give notice?

If the business relies heavily on 1-3 customers or suppliers, it’s worth checking whether those relationships are secured by contract - or whether they’re informal and could disappear after settlement.

4) Employees, Contractors, And Workplace Risk

If the business has staff, you’ll want to understand both the legal obligations and the handover plan.

Key employee/contractor due diligence items include:

• list of employees and roles (including whether they are full-time, part-time, casual)
• copies of employment agreements and workplace policies
• contractor arrangements (and whether contractors are truly contractors)
• pay rates and award/enterprise agreement coverage
• leave balances and long service leave exposure
• any disputes, grievances, or performance management issues
• superannuation payment status and payroll records

Even if you plan to keep the same team, it matters whether there are clear written terms in place - for example, a properly drafted Employment Contract can reduce uncertainty about duties, notice, confidentiality, and restraints (where appropriate).

Also check whether key staff are essential to the business value (for example, a senior manager with all supplier relationships). If so, consider whether there should be:

• a retention plan;
• a transition services arrangement; and/or
• new employment terms agreed before completion.

One important note: how employees (and their entitlements) are treated can differ depending on whether it’s an asset sale or share sale, whether employment is ending and restarting, and how Fair Work transfer rules apply. This is an area where getting advice early can prevent unpleasant surprises.

5) Premises: Lease Terms, Assignments, And Hidden Costs

If the business operates from premises, the lease can make or break the deal.

For many SMEs, the lease is effectively the “real contract” you’re inheriting - because it impacts rent, fit-out, operating costs, and your ability to exit if things change.

Ask for:

• a copy of the lease and any variations
• outgoings estimates and reconciliation history
• rent review provisions (fixed increases vs CPI vs market reviews)
• make-good obligations at the end of the lease
• landlord consent requirements for assignment
• security requirements (bank guarantees, bonds, personal guarantees)

Also check whether there are any restrictions that affect how you’ll run the business (opening hours, signage, noise, permitted use).

If you’re unsure how “transferable” the lease is, it’s worth getting advice early - lease negotiations often dictate settlement timing, and you don’t want to be locked into a purchase without certainty on the premises.

6) Intellectual Property (IP), Branding, And Digital Assets

When you buy a business, you’re often paying a premium for goodwill - and goodwill usually sits in the brand.

So you’ll want to confirm what IP exists and whether it’s legally protected and transferable, including:

• trade marks (registered or unregistered)
• business name usage (remember: a business name is not the same as a trade mark)
• logos and brand assets
• website content, product photos, and marketing materials
• social media accounts (and who controls them)
• customer databases and mailing lists (and privacy compliance)

If the business collects personal information (for example, online orders, newsletters, loyalty programs), check whether it has a compliant Privacy Policy and whether the way data was collected allows it to be transferred and used by a buyer.

It’s also important to confirm the seller isn’t using third-party images, music, or content without permission - because infringement issues can surface later, when you’re already the owner.

7) Licences, Permits, And Regulatory Compliance

Many businesses require licences or approvals to operate legally (and these don’t always transfer automatically with a sale).

Your due diligence should identify:

• what licences/permits the business currently holds;
• who holds them (individual vs company);
• whether they can be assigned or must be re-applied for; and
• any conditions attached (inspections, training, display requirements, renewals).

Also ask about any past regulatory issues, such as warnings, improvement notices, or audits. If the business operates in a regulated environment (health, building, childcare, transport, financial services), take extra care here.

8) Disputes, Claims, And “Things You Don’t See On The P&L”

Some of the most expensive issues in business acquisitions come from disputes that are not obvious from financial statements.

Ask the seller to disclose (in writing):

• current or threatened disputes with customers, suppliers, employees, landlords, or competitors;
• any insurance claims (past and current);
• any warranty/defect issues with products or services;
• any ACCC complaints or consumer law complaints;
• any IP disputes or allegations of infringement.

This is also where warranties, indemnities, and disclosure schedules in your sale agreement become critical - your legal documents should reflect what was (and wasn’t) disclosed.

Common Red Flags We See In Business Due Diligence

Not every “red flag” kills a deal. Sometimes it just means you negotiate different terms or plan for extra work after completion.

But it helps to know what to look out for.

Red Flag 1: “Handshake” Revenue With No Written Contracts

If a large portion of revenue depends on relationships with no contract (or contracts that can be terminated easily), the business may be riskier than it looks.

In that case, you may want:

• a longer due diligence period to test revenue consistency;
• key customer introductions as a condition before completion; or
• part of the price structured as an earn-out (where appropriate).

Red Flag 2: Unclear Ownership Of Assets Or IP

If the seller can’t prove ownership of key equipment, domains, or brand assets, you may be buying “goodwill” that isn’t legally secured.

This is especially common where the business has grown informally over time and accounts are in someone’s personal name.

Red Flag 3: Security Interests Registered Over Core Assets

If a PPSR search reveals security interests over essential assets, don’t assume it’s fine “because the seller said the loan is nearly paid off”.

You’ll want a clear path to release the security interest before completion (and your sale agreement should deal with it).

Red Flag 4: Employee Entitlements Not Properly Tracked

Missing payroll records, unclear leave balances, or inconsistent pay practices can create exposure.

This can matter even more if you’re taking over employees as part of the sale - because the transaction structure and Fair Work obligations (including if/when entitlements carry across) can get complicated quickly.

Red Flag 5: Lease Assignment Uncertainty Or High Make-Good Costs

A profitable business can become far less attractive if:

• the landlord won’t consent to the assignment;
• a personal guarantee is demanded without negotiation; or
• make-good provisions could cost tens of thousands later.

How To Document Your Findings (And Turn Due Diligence Into Deal Protection)

Due diligence is only useful if it actually changes how you structure the deal.

Once you’ve gathered information, you typically want to translate it into one (or more) of the following outcomes:

1) Adjust The Price Or Payment Structure

If you discover missing assets, expiring contracts, or extra compliance work, the price may need to reflect that.

Sometimes this is done through:

• a lower purchase price;
• withheld amounts until post-completion milestones are met; or
• earn-outs (carefully drafted, with clear metrics).

2) Add Specific Conditions To The Contract

Common “buyer protection” conditions include:

• finance approval
• lease assignment/landlord consent
• transfer of key contracts
• release of security interests (including PPSR registrations)
• employee matters (handover, offers, entitlements)

3) Strengthen Warranties And Indemnities

A well-drafted sale agreement usually includes warranties from the seller about the business (for example, that assets are owned, records are accurate, and there are no undisclosed disputes).

If something is “not ideal but manageable”, you may still proceed - but you’ll want the contract to clearly allocate risk.

4) Make Sure The Transfer Mechanics Actually Work

Even where you agree on price and risk allocation, you still need to make sure the transfer steps are workable.

This includes a practical completion checklist: what happens to accounts, passwords, stocktake, staff notifications, supplier communications, and handover support.

Many buyers use a structured process (including legal due diligence, documentation, and completion steps) through something like a Business Purchase Package or a standalone legal due diligence package, depending on how complex the transaction is.

Key Takeaways

• Business due diligence is your chance to confirm what you’re buying, uncover hidden risks, and avoid surprises after settlement.
• Start by clarifying the deal structure (asset sale vs share sale), because it affects what transfers and what liabilities you may inherit.
• Pay close attention to ownership of assets and security interests - PPSR-related issues are common and can be costly if missed.
• Review key contracts, employee arrangements, lease terms, and IP carefully, because these are often where the real value (and risk) sits.
• Good due diligence should flow into your sale agreement through conditions, warranties, indemnities, and practical completion steps.
• If anything feels unclear or rushed, it’s usually a sign to slow down and get advice before you commit (including from an accountant/tax adviser on the financial and tax side).

If you’d like help with business due diligence or buying a business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.