Purchasing a business in Australia can be a lucrative endeavour, offering opportunities for growth and expansion. However, the journey is not without its legal hurdles. From contractual and due diligence complexities to regulatory compliance, buyers face a myriad of legal challenges that require careful navigation.
Contractual and Due Diligence Conundrum
One of the primary legal challenges in purchasing a business is drafting and negotiating the contract of sale. The terms of the contract must accurately reflect the intentions of both parties while providing adequate protection for the buyer. Ambiguities or omissions in the contract can lead to disputes and costly litigation down the line.
Engage experienced lawyers specialised in mergers and acquisitions to draft and negotiate the contract of sale. Ensure that the contract encompasses essential provisions such as purchase price, parties’ obligations, warranties, indemnities, trade restraint, condition precedent, confidentiality, assets transfer, employee termination and transfer, tax (goods and services tax (GST) and stamp duty) and dispute resolution mechanisms.
However, gathering comprehensive information can be challenging in a market as diverse and dynamic as Australia. Sellers may not always disclose all relevant details, leaving buyers vulnerable to unforeseen liabilities. Engage expert advisors such as legal professionals to conduct thorough due diligence to identify potential red flags. Due Diligence (DD) helps buyers identify any existing or potential legal risks and liabilities associated with the target business.
Depending on whether the acquisition concerns asset or share, the DD may include the scrutiny of contract terms, including lease, supplier and customer agreements, transfer of licenses, intellectual property rights, equipment lease, assets ownership, corporate information, employee entitlements, taxation implications, and compliance with laws and regulations as well as litigation matters. The buyer’s lawyers may negotiate favourable terms based on the findings of the DD and request adjustments to the purchase price or seek indemnification clauses to protect the buyer from any unforeseen legal issues that might arise after the acquisition.
Regulatory Rigmarole
Australia has a complex regulatory framework governing business acquisition, including competition law, foreign investment regulations, and industry-specific regulations. Navigating through these regulations to obtain necessary approvals and clearances can be daunting, particularly for international buyers who are unfamiliar with the Australian business environment.
For example, the Foreign Acquisitions and Takeovers Act 1975 (Cth) applies to and regulates foreign ownership of Australian companies, and the Competition and Consumer Act 2010 (Cth) confers the Australian Competition and Consumer Commission (ACCC) with the power to determine whether the acquisition of shares by specific purchasers affect competition in Australia.
Seek guidance from legal experts who are well-versed in Australian corporate and commercial law and regulatory compliance to ensure adherence to all legal and regulatory requirements. Conduct comprehensive DD to assess the regulatory implications of the acquisition. Obtain necessary approvals from regulatory authorities, such as the ACCC (for example, a merger authorisation) or the Foreign Investment Review Board (FIRB) (depending on the value of the business, interests acquired, free trade agreements and the buyer category), well in advance to avoid delays in closing the deal.
Employment Entanglements
The buyer may want to retain key employees crucial to the business’s operation, given their skills, experience, knowledge, and customer or supplier relationships. Acquiring a business entails taking on existing regulatory and award requirements, as well as workplace obligations, and executing new employment contracts. Failure to comply with employment laws and regulations can result in legal liabilities, including claims for unfair dismissal, underpayment of wages, or breaches of workplace health and safety obligations.
Conduct thorough DD of the target company’s employment practices and agreements. Assess potential risks and liabilities associated with employee entitlements, workplace policies, and industrial relations issues. Implement strategies to mitigate employment-related risks, such as renegotiating employment contracts or implementing post-acquisition workforce integration plans. Retain a lawyer to draft the new employment agreements to ensure compliance with the dynamic employment laws in Australia.
Intellectual Property Impasse
Intellectual property (IP) assets, including trademarks, patents, design, copyrights, and trade secrets, are often critical to the value and success of a business. However, ensuring the proper transfer and protection of IP rights during a business acquisition can be complex, particularly in industries with extensive IP portfolios.
Conduct a comprehensive IP DD assessment to identify and evaluate the target company’s IP assets and liabilities. Ensure that the contract of sale includes provisions for the transfer of IP rights, confidentiality obligations, and warranties regarding the validity and ownership of IP assets. Obtain necessary registrations, licenses, or assignments to secure and protect the acquired IP assets.
Taxation Tightrope
Tax considerations play a significant role in structuring a business acquisition deal. Buyers must navigate through various tax implications in relation to direct and indirect tax, including capital gains tax (CGT), stamp duty, GST, international tax issues, income tax, payroll tax or other indirect tax such as luxury car tax (if any) to optimise the tax efficiency of the transaction.
Collaborate with tax lawyers and accountants to assess the tax implications of the acquisition structure and financing arrangements. Consider tax-efficient strategies such as asset acquisitions versus share acquisitions, small business CGT concession, earn-out arrangements, and tax consolidation to minimise tax exposure. Seek advance rulings or clearances from tax authorities to mitigate uncertainty and ensure compliance with tax laws.
Retain a Lawyer
If you intend to buy a business in Australia, please contact The IP House Lawyers. We can act on your behalf to ensure you are looked after throughout the entire business purchase process, including reviewing, advising, and negotiating the contract of sale, assignment of lease or lease agreement, as well as conducting legal DD, drafting employment agreements and assisting with all IP transfer and registrations.
For any further information or queries on the above content, please contact the authors or the key contact below.
The Author
Jean Kallmyr | Lawyer, The IP House Lawyers | t: 0435 799 831 | e: admin@theiphouse.com.au
Key Contact
Claire Darby | Managing Director/Lawyer, The IP House Lawyers | t: 0412 998 951 | e: claire@theiphouse.com.au
Disclaimer
The information and contents of this publication do not constitute any legal or financial advice. This publication is intended only for reference purposes for The IP House Lawyers’ clients and prospective clients.
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