August 2, 2023

Know How to Conduct Legal Due Diligence When Buying a Business

When one gets to buy a business, he/she must conduct due diligence. The due diligence lawyers have said that due diligence means investigating all the material aspects of a specific business one wishes to purchase.

After completing the due diligence work, one will get to know what type of business he/she is purchasing and what kinds of risks they might have to take.

Due diligence should be conducted when making an agreement with the business seller and when signing the sale of the business contract. In general, one has to agree on the price subject to due diligence.

So, how exactly can one conduct due diligence? Let’s check out the steps:

   1. The Structure of the Business

It’s crucial to have a good understanding of a business’s structure, which he/she is buying. Not purchasing a well-structured business can lead to many consequences. One has to be well aware of what type of business they are buying.

There are two ways through which one can buy a business, which is:

  • He/she can buy the business’s shares
  • He/she can buy the business’s assets

What one gets to purchase will affect their legal responsibilities and the sale process of the business, and it might have some tax-related consequences. Another thing one must consider is how he/she must buy that particular business.

One can easily purchase a business as:

  • An individual
  • With the help of a trust
  • By using a private firm

   2. Conduct Proper Searches

The business settlement lawyers in Perth have pointed out that it’s crucial to conduct searches as it’s an important due diligence method. During the searches, one must consider the following:

  • Who currently runs and owns the particular business
  • Whether or not there is an impending or ongoing lawsuit against that business
  • Whether or not the business has some outstanding liabilities like unpaid loans

   3. The Sale of the Business Contract

The sale of the business agreement is known as a contract, which outlines all the terms and conditions of the sale.

One must have this particular agreement so that both parties have good knowledge about the nature of the sale. Things that are not included within the agreement will not get covered or included in the sale.

So, one must make sure he/she has a properly drafted agreement that protects their protection. One also needs to make sure that the agreement includes all the things he/she wants to buy.

   4. Possible Competition and Commercial Feasibility

Before buying a specific business, professional business solicitors have said that a buyer must check how success is an industry is. Besides that, it’s also important to check whether or not there will be any strong prospects in the coming future.

To understand this part, this illustration will help you:

One might not benefit from buying a business that only deals with developing films for photographs. It’s primarily because many people these days will take pictures on their digital cameras or their smartphones. 

One must also check whether or not the business he/she is planning to buy deals with all the hard-to-find and unique items. This might give them a competitive edge within the industry.

Business buyers should also consider how strong their competition is, both in the area of online businesses and nearby businesses.

   5. The Suppliers

When checking the sale of business agreements, one must see if current supplier agreements are being transferred as well. This is pretty relevant to where exactly the business deals with all the physical products.

One must also confirm this matter with the supplier, and he/she should get this done when they are pretty impressed with the stock’s quality and want to retain the current suppliers.

Apart from that, one must also review the following:

  • When exactly will the contract end
  • How many payments/fees are involved
  • Whether or not there are any minimum buying conditions
  • Whether or not the unsuitable or incorrect stock will get refunded/replaced
  • Whether or not the business one wants to purchase has any unwritten contracts with the suppliers, which can get transferred to him/her.

   6. The Location

The small business lawyer claims that it’s crucial to consider whether or not the location of the business one aims to purchase is favourable to certain aspects like:

  • Accessibility
  • Traffic
  • Parking facilities
  • Noise levels
  • Whether or not the premises will enable him/her to carry out business activity

The success of the business in the future might get affected due to construction or restructuring plans. That’s why one must check all the records at the local government firm or council whether or not there are some impending:

  • Developments
  • Town planning modifications
  • Public-related works
  • Rezoning the plans
  • Road developments

   7. The Employees/Staff Members

The business one plans to purchase might still have some staff members. So, if he/she is planning to retain the current employees/staff members, he/she should make sure that all of them have proper working rights.

The business acquisition lawyer has pointed out that business buyers should make sure that the existing employees:

  • Has working rights and a visa in Australia
  • Must carry valid employment agreements with the business
  • The employees are qualified for their respective jobs
  • Gets paid the right entitlements and salary
  • The staff are qualified to receive employee benefits like superannuation, sick leave, annual leave and many more.
  • Has all the needed licenses or any other documents.

   8. The Leases

The reliable and trusted due diligence in contract law lawyer says that it’s vital to have a good understanding of the lease. This is especially true when he/she is planning to take a particular business with the physical premises.

This is primarily because when one wants to make sure that he/she can utilise the premises after they have bought the business. So, one can easily take over the current lease of the seller within the business sale effectively.

To do so, the business buyer will require all the parties, which includes the landlord, to sign the contract of assignment.

There is much room for negotiation when one takes over the lease, so he/she needs to have a proper understanding of the obligations and rights mentioned under the lease. That’s one must check the following:

  • How long will the lease last
  • Any increase in the rent
  • The “make good” clause, which mentions how one can leave the premises when they plan to move out.

   9. The Seller

Individuals should know the reason why exactly the seller is selling off their business. This can help him/her determine whether or not this is the best decision for them. So, one must consider:

  • The reason for making the sale
  • Whether or not the seller had a specialised role within the business, whether or not one can match this
  • Whether or not the seller aims to open up a competing business, which can affect the success of one’s business

For a smooth transition, one must observe how exactly the seller operates the business when it comes to choosing business strategies and techniques to help the business gain success.

This can give him/her a clue on how exactly the business runs and whether or not he/she can fully commit to it.

Ending Words

There are countless individuals who purchase a business. But one must conduct due diligence as it will give him/her an idea of where the vision and direction of the particular business has been.

Furthermore, he/she can also gain more knowledge about due diligence from business settlement lawyers Perth, who are experts in dealing with such matters.

They will certainly offer their assistance and provide you with information on what he/she needs to do when purchasing a business.