Start with what you are actually buying
The first question is whether the transaction is an asset purchase, a share purchase or another structure. That affects what property, contracts and liabilities move to the buyer and what consents or transfers may be required.
Key contracts and revenue
Review the contracts that generate or support the business's revenue. Look for change-of-control provisions, assignment restrictions, termination rights, unusual indemnities and whether important customer or supplier relationships are actually documented.
Premises and leases
If the business depends on a particular location, understand the lease term, options, rent review mechanism, permitted use, make-good obligations, guarantees and the landlord's requirements for assignment or a new lease.
Assets, ownership and security
Confirm which assets are included, who owns them and whether they are subject to finance or security interests. Completion mechanics should address releases where necessary.
Employees, licences and compliance
Consider employee arrangements, accrued entitlements, licences, registrations and any approvals needed to continue operating after completion.
Tax and transaction structure
Tax treatment should be considered before the documents are finalised. For example, the ATO notes that a sale may qualify as a GST-free going concern only if the statutory conditions are satisfied. CGT and other tax consequences can also affect how the deal is structured.
Turn findings into contract protection
Due diligence is most useful when its findings affect the contract: conditions precedent, warranties, indemnities, price adjustments, retention arrangements or a decision not to proceed.
Legal due diligence is different from financial due diligence
Your accountant may test revenue, margins, working capital and tax exposures. Legal due diligence asks a different question: will the buyer legally receive the business it thinks it is buying, on terms that allow it to keep operating, without inheriting unacceptable contractual or regulatory risk?
The two workstreams should communicate. A customer concentration issue identified in financial due diligence may lead the lawyer to examine termination rights in the key customer contract. A large provision in the accounts may point to a dispute or employee liability requiring specific contract protection.
Check the seller and ownership chain
Confirm that the entity named as seller actually owns the business assets. Search ASIC records, business-name records and relevant registers. If key equipment, intellectual property or domain names are owned by a related entity or individual, the contract must require those assets to be transferred as part of completion.
PPSR and financed assets
Where plant, equipment or other personal property is subject to security interests, the buyer should identify what releases are required. A purchase price paid in full is little comfort if a third-party secured creditor can later assert rights over an asset that was supposed to transfer unencumbered.
Intellectual property and digital assets
Review ownership of trade marks, business names, websites, domains, software licences, social-media accounts, phone numbers and customer databases. In modern service businesses, these can be more important than the physical assets. Confirm whether licences are transferable and whether contractors have assigned intellectual property to the seller.
Conditions precedent versus warranties
If an issue must be solved before you can safely own the business—such as obtaining landlord consent, a licence, finance approval or a key third-party consent—it may belong as a condition precedent rather than merely a seller warranty. A warranty generally gives a remedy after breach; a condition can prevent completion until the issue is actually resolved.
Purchase price adjustments
Stock, employee entitlements, prepaid expenses, rent, deposits and other amounts may require adjustment at completion. If a material part of the price depends on stocktake or post-completion calculations, the contract should define the accounting method, valuation basis and dispute process.
Red flags that should change the deal
- The seller cannot prove ownership of a key asset.
- The premises lease is near expiry or cannot be assigned on acceptable terms.
- Important revenue depends on undocumented customer relationships.
- Licences or accreditations are personal to the seller and cannot be transferred.
- There are unresolved employee claims, tax disputes or litigation.
- Key intellectual property is owned by a contractor or related party.
- The contract requires the buyer to accept broad historic liabilities without adequate protection.
Due diligence should end with a decision
The purpose is not to produce a long list of issues. Each material finding should lead to one of four outcomes: accept the risk, change the price, require a condition or contractual protection, or do not proceed. That decision-focused approach keeps due diligence commercially useful.