Due diligence is an essential step in buying a business as it involves the Purchaser ascertaining all important information about the business, allowing them to make an informed decision about their purchase. It is critical for a Purchaser to be able to assess the value of the business and any potential risks associated with it prior to entering into a Contract of Sale.
The due diligence process involves the Purchaser investigating all aspects of the business including its day-to-day operations, financial performance, legal compliance, intellectual property, assets, and other-like details. It goes without saying that any Purchaser should undertake a thorough due diligence process before entering a binding contract. As such, the due diligence process usually occurs prior to a binding contract being executed. However, contracts can also be signed conditional on the purchaser completing and being satisfied with their due diligence enquiries.
A Vendor must comply with the Australian Privacy Principles during the due diligence process. A Vendor should only provide a prospective purchaser with personal information if such information is consistent with the vendor’s obligation concerning disclosure. A Vendor would, typically, provide a purchaser with:
Financial information;
Contractual and lease documents;
Information concerning employee entitlements (if employees are maintaining employment and with the employee’s consent); and
Aggregated statistical customer information.
If a Vendor is concerned that providing such information would involve divulging sensitive personal information, then that vendor should consider whether the information can be de-identified. A purchaser must comply with all confidentiality and privacy laws. A vendor may also choose to have the purchaser sign a non-disclosure statement prior to accessing such information.
As previously noted in our blog post “What to consider before purchasing a business,” some relevant matters to consider are:
Does the sale include the equipment, fixtures and fittings and databases?
Does the sale include any stock and is there a monetary limit on the value of the stock?
Will there be any transfer of license or intellectual property (such as business name, trade names, product names, trademarks, patents, copyrights or websites etc)?
Will there be a transfer of employees and what are the implications surrounding their leave entitlements?
Are there any tax implications related to your purchase and have you set up the right business structures for your purchase?
What are the intangible aspects of the business that you will need? For example, will you be provided client lists, suppliers, trained staff and operational systems?
What certifications are required to operate the business? For example, do you need to obtain a food handling certificate?
Are you buying a franchise? If so, does the franchisor have requirements you need to meet?
Selling or Purchasing a business and completing/complying with the due diligence process can be a stressful time. With the right professional team around you and the proper checks and balances in place, you give yourself the best chance possible for success. ASAP Lawyers regularly accept instructions in the purchase and sale of businesses. Contact us on 03 9450 9400 to speak with one of our lawyers.