Disclaimer: This article is general information only and does not constitute legal advice. For tailored advice, consult a qualified Australian legal professional.
Selling a business in Australia can be a lucrative step toward retirement or your next venture, but it also presents significant legal risks if not handled correctly. Many business owners unknowingly expose themselves to post-sale liability or financial losses due to avoidable legal pitfalls. Below are the top legal traps to be aware of when selling a business in Australia and how to avoid them.
The sale agreement is the cornerstone of the transaction. Vague or poorly drafted clauses around handover, price adjustments, or warranties can leave you exposed. Ensure the contract clearly defines:
Other considerations include exclusivity periods, non-refundable deposits, and access to business records during due diligence. Poorly defined obligations during these phases can create ambiguity that may later escalate into costly disputes.
Under the Fair Work Act 2009, employee entitlements such as annual leave, long service leave, and redundancy must be addressed during a business sale. If the buyer doesn't assume these liabilities, the seller can remain liable post-sale.
Failure to plan for employee obligations can lead to legal disputes or ATO audits post-settlement.
If the business operates from leased premises, the landlord must usually consent to lease assignment. Many deals fall through or are delayed due to missing lease provisions or poor communication with the landlord.
It's also wise to obtain written confirmation from the landlord of any rent arrears, upcoming increases, or repair obligations that may affect the buyer's decision.
Capital Gains Tax (CGT) can significantly reduce your net proceeds. Many small business owners qualify for CGT concessions, but these must be structured before the contract is signed.
Proper tax structuring can mean the difference between paying hundreds of thousands in tax or qualifying for exemptions and rollovers that defer or eliminate CGT entirely.
Failing to disclose important issues—like pending litigation, outstanding tax debts, or major customer departures can lead to legal claims for misrepresentation or breach of warranty.
Transparency builds trust with buyers and reduces the likelihood of post-sale legal action. Misrepresentation (whether intentional or accidental) can unravel a deal or trigger compensation claims under Australian Consumer Law.
Most buyers will include a restraint of trade clause to prevent you from starting a competing business. Ensure that the duration and scope are reasonable, otherwise the clause may be unenforceable or overly restrictive for your future plans.
If your business has branding, trademarks, or custom software, these must be formally transferred. Informal handovers may leave you liable for future disputes. Check that IP is correctly registered and included in the sale documentation.
Selling a business is complex, and overlooking the legal details can have lasting consequences. Work closely with a commercial lawyer, accountant, and business broker like Lloyds to ensure a clean, compliant, and profitable exit.
