Buying a business is a significant commercial investment. Whether you are acquiring a small family enterprise or a large company, conducting legal due diligence is essential to minimising risk and ensuring that you know exactly what you are purchasing.
In Australia, due diligence involves reviewing a wide range of legal, regulatory and contractual matters before signing a binding agreement.
Below is a practical legal due diligence checklist to guide prospective buyers.
Business Structure and Ownership
Confirm the Legal Entity
The first step is to identify the structure of the business. Is it a sole trader, partnership, trust or company? If you are buying shares in a company, you are acquiring the company itself (including its liabilities). If you are purchasing assets, you are generally only acquiring specified assets and selected liabilities.
Review Corporate Records
For companies, review:
- ASIC company search and current extract
- Constitution and shareholders’ agreements
- Minutes of directors’ and shareholders’ meetings
- Details of issued shares and any options or convertible securities
This ensures the seller has the legal authority to sell and that there are no undisclosed ownership issues.
Financial and Tax Matters
Tax Compliance
Confirm the business is compliant with its taxation obligations, including:
- Income tax
- GST
- PAYG withholding
- Superannuation guarantee contributions
Request copies of lodged BAS statements and tax returns. Outstanding tax liabilities can become your problem, particularly in a share sale.
PPSR Searches
Conduct Personal Property Securities Register (PPSR) searches to identify any security interests registered over the business assets. You need to ensure that any secured debts will be discharged at settlement.
Key Contracts and Commercial Arrangements
Major Customer and Supplier Agreements
Review significant contracts with customers and suppliers to assess:
- Term and termination rights
- Change of control clauses
- Assignment restrictions
- Exclusivity arrangements
Some contracts may automatically terminate or require consent if ownership changes.
Lease Agreements
If the business operates from leased premises, carefully review the lease. Key issues include:
- Any remaining lease terms
- Options to renew
- Assignment provisions
- Landlord consent requirements
In retail businesses, ensure compliance with the relevant state or territory retail leasing legislation.
Employment and Workplace Compliance
Employment Contracts
Examine all employment agreements, including:
- Key management contracts
- Restraint clauses
- Bonus and incentive arrangements
Clarify whether employees will transfer with the business and on what terms.
Workplace Obligations
Confirm compliance with:
- The Fair Work Act 2009 (Cth)
- Modern awards or enterprise agreements
- Workplace health and safety (WHS) legislation
- Superannuation obligations
Identify any existing or threatened employment disputes, unfair dismissal claims or underpayment issues.
Intellectual Property
Ownership and Registration
Identify all intellectual property (IP) used in the business, such as:
- Trade marks
- Business names
- Domain names
- Copyright materials
- Patents or designs
Verify that registrations are current and owned by the correct legal entity. Ensure that any IP created by contractors has been properly assigned to the business.
Regulatory and Licensing Requirements
Industry-Specific Licences
Many Australian businesses require licences or permit (e.g. financial services, building and construction, hospitality). Confirm that:
- All required licences are in place
- They are current and compliant
- They can be transferred or reissued to the buyer
Compliance History
Investigate any past breaches, notices, fines or investigations by regulators such as ASIC, the ACCC, ATO or state authorities.
Litigation and Disputes
Current or Threatened Claims
Request details of any:
- Ongoing litigation
- Tribunal proceedings
- Debt recovery actions
- Customer or supplier disputes
Assess the financial and reputational impact of unresolved matters.
Assets and Liabilities
Asset Verification
Confirm ownership of key assets, including:
- Plant and equipment
- Vehicles
- Stock
- IT systems
Ensure assets are free from encumbrances unless otherwise agreed.
Hidden Liabilities
In a share sale, you acquire all existing liabilities, including contingent or undisclosed risks. Consider warranties and indemnities arrangements in the sale agreement to help protect your position.
Read our blog: The Legal Risks of Not Reviewing Commercial Contracts Properly
Speak to a Commercial Property Lawyer
Dettmann Phair Lawyers are experienced in handling commercial lease law matters related to business purchases.
We can help you understand property disputes, commercial litigation, and contract disputes. Our lawyers tailor a due diligence checklist for your prospective purchase, identify red flags early, and structure the deal appropriately.
Contact us on (02) 9412 4500 or reach out via our contact form for a confidential consultation.
Learn more about us and our fees.
Author
About the Author
Damian Phair, Principal at Dettmann Phair Lawyers, has over 25 years of legal experience across both family and commercial law.
He is highly regarded for his work in complex family law matters, including parenting disputes, property settlements, and financial agreements, where his pragmatic and client-focused approach have helped families resolve sensitive issues with clarity and care.
Additionally, his expertise in commercial law, advising businesses on complex agreements, dispute resolution, and litigation, has delivered protection, compliance and long-term success for our clients. His strategic mindset and depth of knowledge allow him to guide companies through high-stakes negotiations and legal challenges, protecting their interests while supporting growth.
Whether assisting families through personal transitions or businesses navigating commercial complexities, Damian provides clear, practical, and effective legal solutions.
Email:dphair@dettmanns.com | Phone: 02 9412 4500
