Legal Due Diligence Checklist for Buying a Business in Australia
Nigel Gordon··Due Diligence
Legal due diligence is the part of buying a business where you verify that what's being sold actually exists, is legally transferable, and doesn't come with hidden liabilities attached. In Australia, that means checking ownership structures, running PPSR searches, reviewing key contracts, confirming licences are current, and understanding what happens to the commercial lease after settlement.
Most buyers focus their due diligence energy on the financials — which makes sense, because that's where the valuation comes from. But it's the legal issues that tend to produce the nasty surprises after you've already paid. A contract with a change-of-control clause. A lease that can't be assigned without landlord consent. A licence held personally by the seller that evaporates the day they walk out the door. I've seen each of these derail settlements that looked fine on paper.
This checklist walks through the key areas of legal due diligence for an Australian business purchase — what to look for, what to ask for, and what a red flag looks like in practice.
Why Legal DD Gets Skipped (or Rushed)
There's a rhythm to how deals fall apart on legal issues. The buyer does a thorough job on the financials, adjusts the price based on normalised EBITDA, shakes hands, and then instructed their solicitor to "do the legal stuff." By this point, the buyer is emotionally committed and the solicitor is working under time pressure to hit a settlement date. Legal DD becomes a rubber stamp rather than a genuine investigation.
A broker told me about a deal — small electrical business in South East Queensland — where the buyer's solicitor identified on day one of confirmatory DD that three of the top five client contracts had personal service clauses. Meaning the clients had contracted specifically with the seller as an individual, not with the business entity. Those contracts weren't transferable. The buyer didn't know this during preliminary DD because the solicitor wasn't involved yet. The deal had to be renegotiated significantly.
Licences and permits — trade licences, council approvals, industry-specific certifications
Intellectual property — business name, trademarks, domain names, trade secrets
Employment and industrial relations — contracts, award compliance, individual flexibility agreements
Litigation and compliance — historical and current legal proceedings, regulatory obligations
A practical note on timing: legal DD should ideally begin during the preliminary phase, at least for the PPSR check and ownership verification. These are quick, cheap, and can kill a deal early — which is much better than killing it late. The deeper contract and lease reviews typically happen in confirmatory DD, after an LOI or heads of agreement is signed.
Want the full printable checklist with tick boxes, red flag notes, and what-to-do-next guidance for each item? Download it free below.
The Complete Legal Due Diligence Checklist for Buying a Business in Australia
Use this checklist alongside your solicitor's instructions — it is a buyer's operational guide, not legal advice.
Part 1: Business Ownership and Entity Verification
The starting point is confirming that the seller has the legal right to sell what they're offering.
Identify the selling entity. Is the business being sold by an individual, a company (Pty Ltd), a trust, or a partnership? This determines what you're actually acquiring and what liabilities transfer.
Search ASIC for the company or business name. Confirm the ABN/ACN matches what's in the sale documents. Check the registered office, directors, and any outstanding ASIC obligations (overdue annual reviews, deregistration notices).
Identify the legal owner of key assets. For asset sales: are the assets being sold actually registered to the entity that's selling? For share sales: confirm the shareholder register and verify no third-party ownership interests or options exist.
Check for any encumbrances or mortgages over the business or its assets (see PPSR below).
Review the company constitution (if buying shares in a Pty Ltd). Look for pre-emptive rights, share transfer restrictions, or provisions that require shareholder or director consent to transfer shares.
Confirm the trust structure (if the seller operates through a trust). Verify the trustee, the trust deed, and whether the trust assets can be sold without variation to the deed.
Verify the seller's authority to sell. Does a director resolution or trustee resolution authorise the transaction? Has this been provided?
Red flag: The entity listed on the sales memorandum doesn't match the ABN on tax invoices, or the seller can't explain which entity actually holds the licences.
Part 2: PPSR — Personal Property Securities Register
The PPSR is Australia's national register for security interests over personal property (which, in legal terms, includes most business assets other than land). If a financier or supplier has registered a security interest over the business's equipment, debtors, or inventory, you need to know about it before settlement — otherwise you may take on those encumbrances without realising it.
Run a PPSR search against the business's ABN. This reveals whether any party has registered a security interest against the business. Searches are done at ppsr.gov.au and cost a few dollars per search.
Run a PPSR search against the individual seller. If assets are held personally, search against their name and date of birth.
Run searches against key plant and equipment serial numbers (vehicles, trailers, major machinery). A financier may have a security interest registered against a specific piece of equipment rather than the business broadly.
Review all registered security interests. Are they from a legitimate lender? Are they being discharged at settlement? Get written confirmation from the seller's solicitor that any PPSR registrations will be released on or before settlement.
Check for "all present and after-acquired property" interests. Some bank lending includes a general security agreement that captures everything the business owns now and in the future. These must be explicitly discharged.
Red flag: A PPSR registration that the seller can't explain or that isn't captured in the disclosure documents. Undisclosed financiers are a genuine settlement risk.
Part 3: Key Contracts
Request a complete list of material contracts — all agreements with customers, suppliers, subcontractors, and service providers over a defined value threshold (e.g., $5,000 per annum).
Review all customer contracts for change-of-control or assignment clauses. A clause that requires client consent to assign the contract, or that allows the client to terminate on change of ownership, is a material risk if that client represents significant revenue.
Check supplier and subcontractor agreements for similar assignment restrictions. Confirm key supply relationships will continue post-settlement.
Identify personal service clauses. Are any contracts specifically with the seller as an individual? These don't transfer in a business sale — they would need to be novated or renegotiated.
Review exclusivity or territory agreements. Does the business hold an exclusive distribution arrangement or territory right? Is it in writing and transferable?
Check contract durations and renewal terms. Are there material contracts expiring imminently? Are there auto-renewing contracts that would lock the new owner into unfavourable terms?
Identify any contracts with uncommercial terms — discounts that don't reflect current market pricing, cap or collar provisions on pricing, or terms that would be unusual in arm's length dealings (which may indicate related-party arrangements).
Confirm the status of verbal or informal agreements. Sellers often have arrangements with long-standing clients or suppliers that exist only on a handshake. Document these in the sale agreement or walk away from counting them in the valuation.
Red flag: Major revenue contracts that are personal to the seller, short-duration with no renewal rights, or where clients haven't been consulted about the change of ownership.
Part 4: Commercial Lease
If the business operates from a commercial premises (shopfront, workshop, depot, storage yard), the lease is one of the most significant legal items in the transaction.
Obtain a copy of the current lease and all variations. Read it, or have your solicitor read it. Don't rely on the seller's summary.
Check the assignment clause. Can the lease be assigned to the buyer? Does it require landlord consent? Is there a history of the landlord being cooperative with assignments in this property?
Review the remaining term and options. A lease with 12 months remaining and no option to renew gives you very little security. A lease with a 3+3+3 option gives you meaningful tenure. Know what you're getting.
Check the rent review mechanism. Is it CPI-linked, fixed-percentage, or market review? When is the next review due?
Review make-good obligations. What is the tenant (now you) required to do at the end of the lease in terms of reinstatement? Trades businesses often have fitouts, workshop modifications, or signage that triggers make-good costs.
Confirm there are no outstanding defaults. Ask the seller for correspondence with the landlord for the past 12 months. Any notices of default or breach are a serious issue.
Identify any personal guarantees the seller has provided to the landlord. Confirm whether these will be released and replaced by your guarantees at settlement.
Check the permitted use clause. The lease should specifically permit the nature of the business being operated. A lease that permits only "office use" in a premises being used as a service workshop is a compliance issue.
Red flag: A landlord who is known to be uncooperative with assignments, a lease expiring in under 12 months without a clear option, or undisclosed rent arrears.
Part 5: Licences and Permits
For blue-collar and trades businesses specifically, licences and permits are often where the deal's feasibility lives or dies.
Identify all licences required to operate the business. This includes trade licences (electrical, plumbing, gas, building), council-issued business licences, environmental permits, food handling certificates, transport authorities (if the business operates heavy vehicles), and any industry-specific registrations.
Confirm each licence is current and not under review or suspension. Check with the relevant state regulator — QBCC in Queensland, Fair Trading in NSW and VIC, etc.
Determine whether licences are held personally or by the entity. Personally held trade licences (common with sole operators) cannot be transferred. The new owner needs their own licence, which may take weeks or months to obtain.
Assess the transitional period. If a key licence is personal to the seller, what is the plan for continuing to operate legally during the transfer period? Can the seller remain as a contractor during transition?
Check council permits and development approvals for the operating premises. Is the current use approved? Are there conditions attached that restrict operations (noise, hours, vehicle movements)?
Identify any liquor licences, gaming machine authorities, or other regulated activities. These have separate approval processes for change of ownership that can take months.
Red flag: A key operating licence held personally by the seller with no clear transition plan, or licences discovered to be lapsed or conditionally suspended.
Part 6: Intellectual Property
Business name registration. Confirm the business name is registered with ASIC and included in the sale. Is the business name registered at a national level, or only in certain states?
Trade mark search. Search IP Australia's trade mark register for the business name, logo, and any product or service marks. Is the trade mark registered? Is it registered to the selling entity (not a related party)?
Domain names and email addresses. Who owns the business's domain names? Check via the registrar. Ensure all domains are listed in the sale agreement and will be transferred at settlement.
Social media accounts. Who administers the business's Facebook, Instagram, Google Business Profile, and other accounts? Are these in the business's name or the owner's personal account?
Customer database. Confirm the business has the right to hold and transfer customer data in accordance with the Privacy Act. If the database is the core asset, this matters.
Proprietary systems and software. If the business has built or commissioned proprietary software, quoting tools, or operational systems — who owns them? Is there a development agreement in place?
Red flag: Business name or domain owned by a related entity not being sold, or trade marks registered to the individual seller rather than the company.
Obtain a list of all employees with their start dates, classification, employment type (full-time, part-time, casual), and current remuneration.
Confirm the applicable Modern Award for each employee class. Most trades businesses fall under the Building and Construction General On-Site Award or the Vehicle Manufacturing, Repair, Services and Retail Award, depending on the business type.
Review individual employment contracts for any non-standard terms — restraint clauses, commissions, contractual benefits above Award rates, or unusual termination provisions.
Check for any Individual Flexibility Arrangements (IFAs) that modify Award terms. These are legally binding and transfer with the business.
Confirm there are no outstanding unfair dismissal claims, underpayment claims, or workers' compensation disputes.
Identify any employees on long-service leave accrual and ensure this is properly accounted for in the working capital adjustment.
Confirm subcontractor arrangements are genuine independent contracting arrangements and not disguised employment (sham contracting). The distinction matters for liability.
Part 8: Litigation, Regulatory Compliance, and Warranties
Request a statutory declaration from the seller confirming there are no current or threatened legal proceedings against the business or its principals.
Search court records for claims involving the company (ACN search through relevant state court registers).
Check WorkSafe or SafeWork records for improvement notices, prohibition notices, or incidents involving the business in the past 3–5 years.
Check for environmental compliance issues — particularly relevant for businesses that handle chemicals, fuel, waste, or operate machinery that can cause land contamination.
Review insurance policies in place — public liability, product liability, professional indemnity (if applicable), workers' compensation, and vehicle insurance. Note expiry dates and whether policies are claims-made or occurrence-based.
Review the representations and warranties in the Sale and Purchase Agreement carefully. These are your contractual recourse if something undisclosed comes to light post-settlement. Key warranties should include: accuracy of financial statements, completeness of contract disclosure, title to assets, absence of litigation, and ongoing licence validity.
Confirm the restraint of trade clause in the SPA is adequate — geographic scope, time period, and prohibited activities should genuinely restrict the seller from competing, not just create the appearance of protection.
Using This Checklist with Your Solicitor
This checklist is structured for a buyer to use as a management tool — tracking what's been requested, what's been received, and what's still outstanding. Share it with your solicitor at the start of due diligence and ask them to flag which items they'll cover in their legal review and which ones you should follow up directly with the seller.
Pair this with the master due diligence checklist for a complete picture across legal, financial, operational, and tax areas.
This resource is part of Module 5 of The Playbook — Due Diligence. It is not legal advice. Have a qualified Australian solicitor review all legal documents before proceeding with a business purchase.
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