Imagine you’ve found the perfect business to buy. The numbers look good, the brand is strong and the potential for real growth is there. But just as you’re about to finalise the deal, unexpected issues arise.
A hidden liability, an employee dispute or even an investigation by an external regulator threatens to derail the entire transaction. This is the reality of business acquisitions: immense opportunity, but it is all balanced with significant risk.
To ensure you can acquire it smoothly, it’s critical to take proactive steps to protect your business. This guide explores the legal framework surrounding acquisitions, the different types of transactions, the key risks involved and the essential steps to safeguard your interests.
Overview of the law on business acquisitions
In Australia, business acquisitions are governed by a mix of federal and state laws. But the two key pieces of legislation include the following:
- Corporations Act 2001 (Cth) – Regulates the conduct of companies, directors, and the acquisitions of shares; and the
- Competition and Consumer Act 2010 (Cth) – Overseen by the Australian Competition and Consumer Commission (ACCC), this law ensures that mergers and acquisitions do not result in anti-competitive behaviour.
Additional state laws may apply depending on the state where the business operates, covering matters like stamp duty and licensing.
Understanding these legal frameworks is essential to navigating the complexities of a business acquisition.
Key types of acquisitions in Australia
There are two primary ways to acquire a business:
- Asset purchase – The buyer acquires specific assets of the business, such as equipment, intellectual property, contracts or goodwill, without taking on liabilities unless specifically agreed.
- Share purchase – The buyer acquires shares in the company, effectively taking ownership of the entire business, including both its assets and liabilities.
Each type of acquisition has its own implications, so it’s important to choose the right structure for your situation.
What’s the difference between a ‘merger’ and an ‘acquisition’?
Although the terms “merger” and “acquisition” are often used interchangeably, they have distinct meanings:
Merger – Two companies of similar size combine to form a single new entity.
Acquisition – One company purchases a controlling stake company, with the acquired company either becoming a subsidiary or being fully integrated into the purchasing company.
It is essential that you choose the right type of business purchase.
Key risks when buying a business
There are several key risks your business faces when acquiring another, but here are three you should always have in the front of your mind.
Fair valuation
In most circumstances, you do not want to pay too much money for a business. Paying can lead to significant financial strain, and possibly many more problems in the long run – such as the inability to turn your investment into a profitable venture.
A proper valuation, considering tangible and intangible assets, liabilities – as well as future earnings – is crucial.
Leaking of confidential information
During negotiations, sensitive business data may be shared.
If the deal falls through, this information could be misused by competitors or former stakeholders.
You’ll want to ensure that your business has mechanisms in place to ensure that negotiations are in fact kept private.
Legal risk
There is a tidal wave of legal risk that comes with buying any business.
The 5 key ways to protect your business during an acquisition
Here are five ways in particular you can protect your business during the acquisition of another one.
1. Conduct a risk assessment with detailed due diligence
Due diligence is the backbone of a successful commercial acquisition.
This process involves a thorough assessment of the target business’s financials, operations, legal obligations and market position.
Without doing this in meticulous detail, you could unknowingly inherit hidden liabilities or overpay for a struggling company.
Some key areas to investigate include:
- The financials – Review the business’ profit and loss statements, cash flow, tax returns and outstanding debts. You’ll want to ensure the business has a healthy financial foundation.
- The legal track record – Most importantly, you’ll need to review the company’s ongoing or past litigation, its track record of complying with applicable regulations, whether it is not in violation of any intellectual property rights and so on.
- Operational risks – Evaluate the business’s supply chain, customer base and operational efficiency. Are there dependencies on a single supplier or key client?
Hiring legal and financial professionals to conduct due diligence reduces the risk of costly surprises after the acquisition.
2. Carefully draft an acquisition agreement
A well-structured acquisition agreement protects both parties to the transaction and clarifies all expectations. This legally binding document should be comprehensive and cover every aspect of the transaction.
Key elements to include in the agreement:
- Payment terms – For example, you’ll need to outline whether the payment is upfront, in instalments or based on some other external action.
- Warranties and Indemnities – You’ll need to make sure the seller guarantees certain aspects of the business, such as the accuracy of financial statements and the absence of undisclosed liabilities – with indemnities attached in the event the seller breaches their guarantees.
- Transition support – Define whether the seller will stay on for a transition period to help manage the changeover.
- Dispute resolution – Outline how conflicts will be handled, whether through conciliation, mediation or arbitration.
A poorly drafted agreement can leave gaps that expose you to unnecessary risk, so always work with an experienced lawyer to get that acquisition agreement in final form.
3. Cross-check all employment entitlements
When acquiring a business, you’ll need to decide whether you also inherit their employees. The Fair Work Act 2009 (Cth) contains a complex regime when it comes to the sale of a business and the transfer of employee entitlements.
Failing to properly assess their entitlements can lead to unexpected legal and financial liabilities.
Steps to protect yourself:
Review employee contracts – Ensure they are compliant with current employment laws such as the Fair Work Act 2009 (Cth) and any relevant modern awards.
Check accrued and unpaid leave (and superannuation) – Unpaid entitlements can be transferred to you as the new owner. You’ll need to verify any accrued obligations.
Assess redundancy and termination rights – If you plan to restructure or downsize, ensure compliance with the Fair Work Act 2009 (Cth) if you need to make any employees redundant.
Consult with an employment lawyer – To prevent disputes, get legal guidance on transitioning employees smoothly.
A failure to properly address employee rights can result in costly employment disputes in the Fair Work Commission or a federal court.
4. Ensure you’ll face no problems from the competition regulator
The Competition and Consumer Act 2010 has strict rules against mergers or acquisitions that could substantially lessen competition, enforced by the Australian Competition & Consumer Commission (ACCC).
If your deal raises concerns, it could be blocked or subjected to costly legal disputes. It’s not mandatory (at the time of writing) to notify the ACCC of their acquisition.
New mandatory regime starting on 1 January 2026
From 1 January 2026, businesses contemplating acquisitions which meet certain thresholds will be required to notify the competition regulator.
They will need to wait for approval before their proposed acquisition can proceed.
Ensure you receive proper legal advice at all stages of the acquisition to avoid surprises from the ACCC.
5. Get professional legal advice throughout the entire process
Acquiring a business is a complex legal and financial transaction that requires guidance.
A lawyer can:
Identify and mitigate risks arising from the acquisition process
Lawyers can spot potential legal pitfalls in a business’ contracts, employment agreements, financial statements and other documents that most people can’t.
Negotiate favourable terms
Lawyers are also skilled negotiators and can help secure better purchase terms and protections in your acquisition agreement.
Reduce the risk of regulatory trouble
From competition law to tax obligations, legal professionals ensure every aspect of the deal adheres to relevant laws that apply to your acquisition.
Handle disputes
If conflicts arise post-acquisition, having a legal team on hand can help resolve them quickly and cost-effectively.
Investing in experienced legal representation reduces risks and ensures a smooth acquisition process.
Looking for a lawyer to help you acquire a business?
Acquiring a business is an exciting opportunity. But without having your ‘legal house’ in order, it can quickly become a costly mistake.
At Prosper Law, we assist in guiding businesses through the acquisition process, ensuring compliance, reducing risks and securing favourable terms in acquisition agreements.
Whether you need help with due diligence, contract negotiations or post-acquisition legal support, our experienced team is here to help.
Protect your investment and make your acquisition a success. Get in touch with Prosper Law today for legal advice tailored to your business needs.
