Commercial due diligence checks are essential for purchasers to ensure that they have access to information to make a comprehensive appraisal of the business they are considering purchasing. This information will allow the purchaser to assess the value of the business as well as any risks that may be associated with buying it.
The types of commercial due diligence checks a purchaser will conduct will depend on whether they are purchasing the shares or assets of the business. But generally, there are a number of important due diligence checks that purchasers should undertake, including the following:
- If a lease is in place and the terms and conditions of this agreement;
- Who owns and runs the business;
- If the vendor or business are subject to any legal proceedings;
- Any permits, orders, consents or approvals are required to operate the business;
- Information regarding employees and employee entitlements;
- Documentation relating to any intellectual property;
- Material contracts such as customer contracts, supply agreements, and employment contracts;
- Why the vendor is selling the business;
- If any security interests are registered against the vendor or assets of the business;
- If there were any other prospective purchasers who decided not to buy the business, and, if so, why not; and
- How the business was valued and whether an independent valuation is needed.
Financial position and tax
- Reviewing the financial position of the business, including any taxation liabilities;
- Outstanding liabilities of the business;
- Any stamp duty requirements;
- Considering the valuation of assets for the optimum tax advantages.
Sale of Business Contract
- If the contract correctly identifies all assets that are being purchased (unless the transaction is a share sale);
- If business is being sold as a going concern for GST purposes;
- If there are any conditions precedent, or any any conditions in the contract that need to be fulfilled before the purchaser can buy the business;
- The operation of any restraint of trade clauses clauses;
- Any clauses relating to transferring employees and adjustments for employee entitlements;
- If material contracts are transferred to the purchaser.
It is invaluable to get expert legal advice when conducting commercial due diligence. Purchasers must fully understand the nature of the business they are buying and should also seek advice on business structuring and asset protection. An experienced business lawyer will know exactly what checks need to be done and what information to look out for. Contact our expert lawyers by telephone on (02) 4929 7002, or email us at firstname.lastname@example.org.
“Butlers prepared standard contracts for every-day use in our business. The team ensured that the contracts complied with Australian Consumer Law and advised on best practices for PPSR registration. Their experience and knowledge in this complicated area was invaluable, and we feel that our business now has the best protection from expensive legal disputes.”