Do I need a lawyer when buying a business? 

What should I know?

Buying a business can be an important moment for any prospective business owner. However, just like buying a house, there are many moving parts that you should be aware of. Sometimes, buying a business without the advice of a lawyer may cause an adverse financial impact. For example, a person may purchase a business and it does not meet the expectations as initially represented by the vendor. 

Therefore, it is recommended that the outcome of any negotiation between you and the vendor is clearly written into a sale of business agreement (“agreement”). The agreement should act as a detailed roadmap, agreed between you and the vendor, for the business transfer. 

What are some things I should consider?

1. Will you purchase equipment from the vendor?

If you are thinking about buying equipment from the vendor, you should consider a list of equipment in your agreement. For example, if you are purchasing a restaurant, you may also want to purchase the tables, chairs, refrigerators, cutlery, utensils, and cooking equipment.

By listing the equipment purchased from the vendor, this should provide more certainty to your expectations when the business is transferred to you.

• Will you purchase the trading stock?

Some businesses require trading stock for the ongoing sale of goods and/or services.[1]

Consider if trading stock should be purchased from the vendor. If so, then there are number of considerations to be dealt with including valuations, capped stock value, whether the vendor or the purchaser gets to pick the stock they get and not include other things.

• How important is the businesses’ intellectual property to you?

Depending on your vision for the business, a business may be purchased with or without its intellectual property (“IP”).[2] The IP may be important to you because the IP ties with a business’ goodwill. The IP may include:

• trade marks;[3]

• online profile;

• know-how; and

• trade secrets. [4]

Will you be taking over the lease?

While there are businesses that are not the traditional “brick-and-mortar”, there are also a significant number of businesses that are situated on leased premises.

When buying a business, you should consider the transfer of lease. Knowing the terms of the lease that is transferred to you is recommended to ensure that you understand your tenancy rights and legal obligations to the landlord.[5]

• Have you considered the registration or transfer of licences / permits?

Even if a business is purchased, without the transfer or registration of proper licences / permits, you may not be able to operate it. For example, if a restaurant is purchased, you may require a food business licence be transferred or registered so that you can operate the restaurant. In addition, some licences have stringent requirements. As such, it is important that checks are done to ensure that you are eligible to hold the requisite licence.  

To avoid these kinds of hiccups, we recommend due diligence of the licences / permits relating to the operation of the business is completed to help ensure that you may lawfully run the business you intend.

What should I do now?

As a prospective business owner:

• clearly outline and set out what part of a business is being purchased from a vendor; and

• consult a lawyer to assist you with the due diligence process and drafting of the terms and conditions of the agreement.

How can DSA Law help?

If you have a commercial law issue and believe you could benefit expert legal assistance, please Contact Us or one of our Commercial Lawyers at DSA Law on (03) 8595 9580.

---

[1] See generally, Australian Taxation Office, Accounting for business trading stock (20 June 2019) <https://www.ato.gov.au/Business/Income-and-deductions-for-business/Accounting-for-trading-stock/>.  

[2] See generally, IP Australia, Types of IP<https://www.ipaustralia.gov.au/understanding-ip/getting-started-ip/types-of-ip>.

[3] See generally, IP Australia, Trade mark basics <https://www.ipaustralia.gov.au/trade-marks/understanding-trade-marks/trade-mark-basics>.

[4] See generally, IP Australia, Trade secrets <https://www.ipaustralia.gov.au/understanding-ip/taking-your-ip-global/ip-protection-china/trade-secrets>

[5] See generally, the Treasury, What is a lease (14 January 2014) <https://treasury.gov.au/publication/look-before-you-lease-avoiding-the-pitfalls-in-retail-leasing/what-is-a-lease>.