Buying a business is a significant investment and often a personal one. While many buyers focus on price and profit margins, there are critical legal and structural risks that can catch even experienced operators off guard.
In this article, we outline the key legal considerations when purchasing a business in Queensland, particularly around hidden liabilities and protecting your personal and business assets.
- Understand What You Are Buying
The first step is understanding whether you are purchasing the business assets or shares in a company. Most SME sales in Queensland are structured as asset sales, which means you are buying:
- The goodwill
- Business name and intellectual property
- Equipment and stock
- The lease
- Existing contracts (such as supplier and customer agreements)
- Staff entitlements (if transferring)
A share sale involves purchasing the legal entity that operates the business. While this may allow for continuity, it also means you take on all liabilities, including those you may not know about.
Unless there is a clear benefit to doing so, most buyers will want to avoid the risk profile of a share purchase.
- Conduct Proper Legal and Financial Due Diligence
One of the most common pitfalls we see is buyers rushing into a deal without proper due diligence. This includes reviewing:
- Business financials (past three years of BAS, profit and loss statements, and tax returns)
- Material contracts (with key suppliers, customers or referrers)
- Employment obligations (including any award coverage, entitlements and superannuation compliance)
- Lease terms (expiry date, options, rent reviews and assignment conditions)
- Licences and permits (industry specific registrations or regulatory approvals)
We also recommend reviewing the Personal Property Securities Register (PPSR) to ensure the assets being transferred are not subject to finance or other security interests.
- Ask for Warranties and Indemnities
In a business sale contract, it is standard for the seller to provide warranties — statements confirming that certain things are true, such as:
- They have full title to sell the business
- There are no undisclosed liabilities or disputes
- All employee entitlements are up to date
- The business has complied with all applicable laws
You can also request indemnities from the seller. These are promises to reimburse you if certain losses arise after settlement (for example, if an unpaid supplier debt emerges after handover).
If the seller is a company, consider requiring a personal guarantee from the director.
- Structure the Deal to Protect Your Assets
The way you structure the ownership of the business can have major consequences. You should seek advice on whether to purchase the business:
- In your personal name
- Through a company
- As a trust with a corporate trustee
- As a partnership with others
Each structure has different implications for liability, tax, and succession planning. A common option for asset protection is a discretionary trust with a corporate trustee, but this should be tailored to your circumstances in consultation with your accountant and lawyer.
- Secure Key Consents and Authorisations
Before settlement, ensure you obtain:
- Landlord consent to the lease assignment or a new lease
- Transfer of any licences or permits
- Employee acceptance (if they are being transferred)
- Bank releases (to remove any PPSR registrations)
These matters are often listed as conditions precedent in the contract. If they are not satisfied, the buyer may have the right to terminate.
Practical Tip
Take your time before committing to a business purchase. Make sure you understand what you are buying, what liabilities you may be exposed to, and whether the deal structure suits your long term goals. Getting proper advice early on can help you avoid costly mistakes.
Disclaimer: This content is intended as general commentary and may not be applicable to your specific situation. It does not replace independent legal advice.
For a no-obligation consultation on various matters, you can contact us at (07) 3184 2424.