Due diligence is the part of buying a business that most buyers underestimate. A business sale looks straightforward until the contracts, leases and financial records arrive, and the moving parts become clear. Business Queensland notes that due diligence can take anywhere from a week to several months, depending on the complexity of the business and what turns up in the review.
Most disputes after a business purchase trace back to something that was not checked before contracts were signed. The asset pool, the lease, the staff agreements, the supplier contracts and the intellectual property can all carry hidden liabilities that transfer to the buyer once the sale completes. A sale can be structured as an asset purchase, where the buyer takes specific assets, or a share purchase, where the buyer takes the company with all its assets and debts, and the due diligence required differs between them.
As a Springfield law firm, we help clients across Greater Springfield and Ipswich with business purchases, from reviewing contracts to completing the transaction.
Here is how a business purchase checklist generally works in Queensland, and what the key checks cover.
Key takeaways
- Due diligence happens before contracts are signed, not after.
- An asset sale and a share sale transfer very different risks to the buyer.
- A sale contract can include a due diligence period allowing termination on serious issues.
This article is general information only and is not legal advice. Every situation is different, and you should speak with a solicitor about your own circumstances.
What does due diligence actually involve when buying a business in Queensland?
Due diligence is the process of verifying what you are buying before you are legally committed to buy it, according to Business Queensland. It covers contracts, financial records, operations, staff, intellectual property, stock and equipment. The scope depends on the business, but a thorough review generally takes at least several weeks and often longer for complex businesses.
A sale contract can include a due diligence condition, commonly lasting five to ten business days after signing, that allows the buyer to terminate if a serious issue is found, according to Business Queensland. Where problems surface, the buyer's options depend on the contract's own wording and what a solicitor advises.
Business Queensland recommends assembling a team of advisers, including a lawyer, an accountant and any relevant industry specialists, before due diligence begins. Each adviser reviews a different part of the business, and their reports inform the final decision.
What are the two ways a business purchase can be structured in Queensland?
Business Queensland identifies two main structures: an asset sale and a share sale, and the structure affects what transfers to the buyer and what due diligence is needed.
Asset sale:
- › The buyer acquires specific assets such as equipment, stock, intellectual property, franchise agreements and customer lists.
- › The entity and its debts generally stay with the seller.
- › A sole trader's Australian Business Number cannot be transferred to the buyer, according to Business Queensland.
Share sale:
- › The buyer acquires the company itself, including all its assets, rights and liabilities.
- › The price is set for the total company or per share under a share purchase agreement.
- › Hidden liabilities from before the purchase pass to the buyer with the company, which makes the review of company records especially important.
Our conveyancing team advises on both structures and can review the sale contract before you commit to either.
What should a business buyer check before signing in Queensland?
Business Queensland identifies several categories that a thorough due diligence review covers. Each category can reveal issues that affect the price, the structure or the decision to proceed.
Contracts and legal documents:
- › Sale contract: what assets or shares are included, the price and payment terms, the takeover date, accounts receivable treatment, warranties from the seller, and any non-compete.
- › Staff contracts: employment agreements, award coverage and any outstanding entitlements such as long service leave.
- › Supplier and partner contracts: whether key supplier relationships transfer and on what terms.
- › Lease: whether the premises lease transfers with the business, its remaining term, its rent review mechanics and whether the landlord's consent is needed.
Financial records:
- › At least three years of tax returns and notices of assessment.
- › Profit and loss statements and income records.
- › Outstanding loans, utility accounts and any other liabilities.
Operations:
- › Intellectual property: whether trademarks, domain names, software licences and trade secrets are owned by the entity being purchased and can transfer.
- › Stock: condition, quantity and valuation method.
- › Equipment: condition, ownership and whether any assets are subject to finance arrangements.
- › ASIC checks: director and shareholder details, any charges registered against the company, and its constitution.
- › Insurances, licences and regulatory approvals: whether they are current and whether they transfer.
- › Any current or threatened legal proceedings against the business.
Business Queensland also recommends asking about post-sale training, unwritten supplier arrangements and any outstanding body corporate or property expenses where the business occupies a strata tenancy.
How does buying a business generally work in Queensland?
Step 1: Talk to us
Get in touch and we will explain how the process generally works and what the next steps look like for your type of purchase.
Step 2: Due diligence and contract review
We review the sale contract and the due diligence materials with you, working alongside your accountant to identify risks, missing warranties or conditions that need to be added before you sign.
Step 3: Negotiate and finalise the contract
We advise on the contract terms, including the non-compete clause, the handover arrangements, the treatment of accounts receivable and any warranties the seller provides. Where a letter of intent or exclusivity arrangement precedes the contract, we review that too.
Step 4: Complete the purchase
We manage the completion process, including coordinating the transfer of assets or shares, registering any required changes with ASIC, dealing with the landlord on a lease assignment, and ensuring the agreed settlement of the purchase price is properly documented.
| Get in touch Need help with buying a business? We're an experienced team who keep you well informed at every stage of the process. Get in touch to discuss your needs. |
When does due diligence NOT need to protect a buyer in Queensland?
Not every business purchase carries the same risk, and the intensity of due diligence is proportionate to what is being bought. A buyer purchasing a small sole trader business with no staff, no commercial lease, no intellectual property and a simple asset list faces a narrower set of checks than a buyer taking on a company with employees, a long-term tenancy, a franchise agreement and a substantial customer database.
Due diligence is also less burdensome where the seller provides strong contractual warranties and indemnities covering underpaid wages, superannuation, supplier disputes and any outstanding tax obligations. Business Queensland identifies these protections as a recommended part of the purchase contract, and where they are comprehensive, the buyer has recourse if something surfaces after settlement.
A share purchase is generally the situation where due diligence matters most, because the buyer inherits the company's full history. An asset purchase is more selective by nature, but checking that the specific assets can actually transfer, and are free of charges or security interests, is equally important.
What are the common mistakes buyers make when buying a business in Queensland?
Business Queensland warns that buyers often underestimate how long due diligence takes and begin negotiating price before the review is complete. Setting the price before reviewing the financial records for at least three years, and before confirming what liabilities transfer, can leave a buyer paying more than the business is worth.
A second common mistake is overlooking unwritten arrangements. Supplier relationships, informal staff understandings and verbal commitments from the seller that are not captured in the contract have no legal force after the sale completes. Business Queensland specifically identifies unwritten supplier arrangements as something to ask about before signing.
A third is failing to check whether key assets can actually transfer. A licence, a franchise agreement, a domain name or a piece of software may be personal to the seller and may not assign to a buyer without the third party's consent. Discovering that a core operating asset cannot transfer after contracts are exchanged is a serious and avoidable problem.
"The due diligence period is when you find out what you are actually buying. Reviewing the contracts, the leases and the financial records before signing gives a buyer the clearest picture of what transfers and what does not."
Jade Kickbusch, Principal, Brookwater Legal
Frequently Asked Questions
What is the difference between an asset sale and a share sale in Queensland?
In an asset sale the buyer takes specific assets and the entity stays with the seller. In a share sale the buyer takes the company with all its assets and liabilities, according to Business Queensland. Each structure has different due diligence requirements and risk profiles.
How long does due diligence take when buying a business in Queensland?
Business Queensland says due diligence can take anywhere from a week to several months. A contract commonly includes a due diligence condition of five to ten business days, though that period can be extended by agreement where the review is complex.
Is transfer duty payable when buying a business in Queensland?
Transfer duty can apply to the purchase of certain business assets in Queensland, including goodwill, statutory licences and other dutiable assets, according to the Queensland Revenue Office. Whether it applies and in what amount depends on what is being acquired and how the transaction is structured.
What warranties should a buyer ask for in a Queensland business sale contract?
Business Queensland identifies warranties and indemnities from the seller as a recommended part of a purchase contract, covering matters such as underpaid wages, superannuation and supplier disputes. What warranties are appropriate depends on the business, the structure and what the due diligence reveals.
What happens to staff when a business is sold in Queensland?
Staff entitlements, including accrued leave and superannuation, are among the liabilities Business Queensland identifies as part of a buyer's due diligence review. Whether employees transfer and on what terms depends on the structure of the sale and the individual employment contracts, which a solicitor can review.
Do you need a solicitor to buy a business in Springfield or Ipswich QLD?
Business Queensland recommends engaging a lawyer as part of the due diligence and purchase team. A solicitor reviews the sale contract, advises on the structure, identifies risks in the due diligence materials and manages the completion process, including any lease assignment or ASIC changes.
Can a letter of intent be used before a Queensland business sale contract is signed?
Business Queensland identifies a letter of intent as part of completing a business purchase. It is generally non-binding and may include an exclusivity period and conditions such as finance or a trial. Whether a letter of intent has legal effect depends on how it is drafted, which a solicitor can advise on.
Your Next Steps
Buying a business in Queensland involves more moving parts than most buyers expect at the outset. Getting the structure right, identifying what transfers and what does not, and having the contract protect against risks that due diligence uncovers are all reasons the process is handled carefully by buyers in Springfield and across Greater Springfield. A business purchase that goes wrong is expensive and slow to unwind; the checks happen before the contract is signed, not after.
Every business purchase matter is different, and that's exactly why it's worth a conversation. Make an appointment with the Brookwater Legal team or call (07) 3437 8555.
 |
External Resources
Brookwater Legal · This article contains general information only and does not constitute legal advice. It does not take into account your individual circumstances. You should obtain legal advice about your own situation before acting on anything in this article. Liability limited by a scheme approved under Professional Standards Legislation.
