There are many things to consider when buying a business in Australia. Would-be business owners need to consider finance, stamp duty, staff, leasing, property transfers and other matters that are relevant to the business purchase.
In this article, our M&A lawyer will explain the top 10 things to consider when buying a business. We will explain:
Due diligence simply refers to the seller sharing and you assessing information about the business to enable you to decide:
The purchase contract should include promises from the seller to you that they have given you all relevant information and that the information is accurate. However, you should also be proactive and ask for more information if you think you are missing anything.
A contract to buy a business (also known as a business purchase or business sale agreement) is a fundamental part of the purchase process.
We recommend that you engage an M&A lawyer to either prepare or review the business purchase contract. This should be done as soon as possible after agreeing to the high level terms of the agreement, such as:
A contract for the purchase of a business often takes several weeks. You should talk to a lawyer sooner rather than later for this reason and to avoid any delays.
Conditions precedent are matters which:
They are referred to as “conditions” because they are fundamental and “precedent” because the business cannot be bought without them. Before you sign the purchase agreement, consider what your absolute must haves are and make sure they are a condition precedent in the contract.
A commercial lease is often critical to the effective and continued operation of the business you are buying. Location, goodwill and rent costs are all relevant to the price you are paying for the business.
You will only need to consider a commercial lease if this is relevant to the business you are buying. This should be identified during due diligence and we strongly recommend engaging with a lawyer to review the commercial lease.
The transfer of the lease from the seller to the buyer should be a condition precedent to completion (more on this below). This means that the purchase cannot go ahead unless, for example:
You should consider the commercial lease as soon as possible if it is a key part of the business you are buying. At the very latest, you should consider what needs to occur with the existing lease after the purchase agreement is signed and before completion.
Not all businesses own the premises that they operate from. If you are buying a business and a part of the purchase includes the transfer of commercial property, you will need to engage a lawyer. They will manage the property transfer and settlement.
We recommend at least the following when you are buying property as part of a business purchase:
You should do this after signing the business purchase contract and before settlement. You should ensure that settlement is conditional on the property being in a good condition and the business having the right to operate from the premises.
You may want to employ staff that were employed by the seller. This will depend on the size and type of business you are buying, and whether there are key employees you want to employ.
Employees are often a key part of the successful operation of a business. If there is one or more employees that are so important that the business cannot effectively operate without them, you should consider:
During the due diligence phase, you should check:
You should think about whether and what employees you would like to hire before the contract to buy the business is signed. That way, the contract can be prepared having regard to those employees. It is also recommended that the seller provides guarantees that employees have been correctly engaged and paid.
Completion (also known as settlement) of a business purchase happens when:
Stamp duty (sometimes called ‘transfer duty’) is a tax imposed on certain transactions, including the transfer of business assets, real estate, and leases, and it varies across Australia.
When buying a business, stamp duty is typically paid by the buyer, though requirements can vary. It’s calculated based on the value of specific assets involved in the purchase, such as real property, business equipment, or intellectual property.
Sellers generally aren’t required to pay stamp duty, but they may have other tax obligations (such as capital gains tax) related to the sale.
Given the varying rules, buyers should consult with a tax advisor or legal professional to determine specific stamp duty obligations based on the location and structure of the business purchase.
In Queensland, stamp duty (or transfer duty) is payable by the buyer when purchasing certain business assets, particularly when a business purchase involves the transfer of real property, lease agreements, or valuable business assets.
The amount of stamp duty depends on the value of the assets involved. For example, if the business includes property valued at AUD 500,000, stamp duty will be calculated based on Queensland’s property transfer rates.
Consulting with a local professional can clarify obligations and help calculate the exact duty amount for the purchase.
After completion has occurred and you have bought the business, it is recommended that you ensure the seller provides a handover of the business. This could involve:
Disputes can occur after you have bought the business. Often, some things must occur after completion. If the seller is obligated to do something (or not do something) and they breach the contract, you will need to comply with the dispute process.
Most purchase agreements will set out a process (and time limits) that apply to disputes. It’s important to follow the correct process because you may lose your right to claim against the seller if you don’t.
For example, if you become aware that an employee was not paid correctly by the seller (and you now need to back pay salary for the period the seller was the employer). You may have a specific time period that you need to tell the seller about the issue.
Due diligence helps the buyer assess the business’s financial health, legal obligations, and operational viability. It’s crucial for ensuring that the business aligns with the buyer’s expectations and that there are no hidden issues.
A comprehensive business sale contract should specify the purchase price, included assets, any excluded items. It should also describe key conditions precedent that must be met before the sale can be completed. Legal guidance is recommended to ensure clarity and legal compliance.
No, employees aren’t automatically transferred. Buyers may choose to retain certain employees, but employment terms must be negotiated, and any employment agreements updated. This is especially so if specific employees are critical to business operations.
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