Legal Considerations When Buying or Selling a Business in NSW
Buying or selling a business in New South Wales involves more than agreeing on a price. The key legal issues typically include: whether the transaction is a sale of business assets or a sale of company shares; due diligence on contracts, leases, licences and finances; employee entitlements under the Fair Work Act 2009 (Cth); whether GST applies or the sale qualifies as a GST-free “supply of a going concern”; transfer duty on any land, fixtures or dutiable goods; assignment of any commercial or retail lease; and, for foreign buyers, approval under the Foreign Acquisitions and Takeovers Act 1975 (Cth). This article explains each step in plain English so you know what to expect before you sign anything.
If your matter is time-sensitive, you can book a consultation with Caspian Legal Pty Ltd’s commercial law team before you sign a contract of sale or heads of agreement.
Which Law Applies
This article applies to the sale and purchase of a business operating in New South Wales. It refers to Commonwealth legislation (including the Fair Work Act 2009, the GST Act 1999 and the Foreign Acquisitions and Takeovers Act 1975) and NSW legislation (including the Duties Act 1997 and, where a retail shop is involved, the Retail Leases Act 1994). Different rules may apply if the business or its assets are located outside NSW, and interstate transactions should be reviewed against the relevant state or territory law.
Why This Matters Before You Sign
A business sale can feel straightforward when both sides are motivated to move quickly, but the legal structure of the deal affects tax, employee obligations, ongoing liability and what you actually end up owning. Getting advice before signing a contract of sale, rather than after, is generally when a solicitor can add the most value. Our commercial law team at Caspian Legal Pty Ltd assists buyers and sellers across Hornsby and the wider Upper North Shore, as well as clients elsewhere in NSW, with business sale contracts, due diligence and completion.
Asset Sale or Share Sale: What’s the Difference
Most small and medium business transactions in Australia are structured as either an asset sale or a share sale. The table below sets out the general distinction. Which structure suits a particular transaction depends on tax position, liabilities, contracts and the parties’ commercial objectives, and should be discussed with your solicitor and accountant.
| Feature | Asset Sale | Share Sale |
| What is transferred | Specific assets of the business (plant, stock, goodwill, contracts, lease) chosen by the parties | Shares in the company that owns the business, including all its assets and liabilities |
| Liabilities | Buyer generally takes on only the liabilities expressly agreed | Buyer generally takes on the company “as is”, including undisclosed or historical liabilities |
| Employees | New employment relationship; Fair Work Act transfer of business rules may apply | Employment generally continues unchanged, as the employer entity does not change |
| GST | May be GST-free if the sale qualifies as a going concern under s 38-325 GST Act | Sale of shares is generally an input taxed financial supply, not subject to GST |
| NSW duty | Business assets are generally exempt; duty may still apply to land, fixtures or certain goods | Duty may apply to “landholder” companies that hold significant NSW land |
| Due diligence focus | Title to specific assets, contracts and lease | Company-wide: financials, contracts, litigation, compliance history |
Key Terms Explained
| Term | What It Means |
| Heads of Agreement | A short, often non-binding document recording the key commercial terms before a full contract is drafted. |
| Due diligence | The buyer’s investigation into the business’s financial, legal and operational position before completion. |
| Contract of sale | The binding legal agreement setting out price, assets included, conditions and completion arrangements. |
| Completion (settlement) | The date the sale legally finalises and the business, assets or shares change hands. |
| Going concern | A GST concept: if all the things needed to run the business are sold and the seller operates it until settlement, the sale may be GST-free (s 38-325, GST Act). |
| Restraint of trade | A clause restricting the seller from competing with the business, for a defined area and period, after sale. |
| Warranties | Promises by the seller about the state of the business (for example, that accounts are accurate) that a buyer can rely on. |
| Disclosure statement | A statement about the lease and premises that the outgoing tenant must give the incoming tenant before a retail lease is assigned, using the copy the landlord originally provided plus an updated version (Retail Leases Act 1994, ss 41(b) and 41A). |
The Process, Step by Step
The exact steps vary by transaction, but a typical NSW business sale generally follows this sequence:
- Heads of agreement or letter of intent – the parties agree key commercial terms (price, assets/shares, timing) usually on a non-binding basis.
- Due diligence – the buyer reviews financial records, contracts, leases, employee entitlements, licences and any litigation history.
- Contract negotiation – solicitors prepare and negotiate the contract of sale, including warranties, restraint of trade and conditions (such as landlord or FIRB consent).
- Exchange – both parties sign and the contract becomes binding, subject to any conditions.
- Satisfying conditions – for example, obtaining landlord consent to assign the lease, or FIRB approval for a foreign buyer.
- Completion (settlement) – the balance of the price is paid, assets or shares are transferred, and possession changes hands.
- Post-completion – notifying ASIC, the ATO, employees, suppliers and licensing bodies, and updating business names or registrations as required.
Employees: The Fair Work Act “Transfer of Business” Rules
Part 2-8 of the Fair Work Act 2009 (Cth) governs what happens to employees, modern awards and enterprise agreements when a business changes hands. Broadly, a “transfer of business” can occur where an employee starts with the new employer within three months of leaving the old employer, does the same or substantially similar work, and there is a relevant connection between the two employers (for example, the new employer uses assets transferred from the old employer).
Where the rules apply, entitlements such as accrued annual leave and, in some circumstances, recognition of prior service for long service leave and unfair dismissal purposes, can carry across to the new employer. The rules are technical and the outcome depends on the facts of each transfer, so both buyers and sellers should obtain specific advice on staff before completion.
Leases: Assigning a Commercial or Retail Lease
If the business operates from leased premises, the lease will usually need to be formally assigned to the buyer, or a new lease granted. Where the premises fall within the Retail Leases Act 1994 (NSW), section 41 sets out a specific procedure: the outgoing tenant must request the landlord’s consent in writing and provide the required information, including a disclosure statement to the incoming tenant. The landlord then has 28 days to consent or refuse, and is taken to have consented if it does not respond within that period. A landlord can refuse consent only on the grounds set out in the Act (for example, reasonable concerns about the assignee’s financial resources or business experience) — it is not simply a matter of the landlord’s preference.
Commercial (non-retail) leases are not covered by the Retail Leases Act and are instead governed by the terms of the lease itself and general contract law, so the specific wording of the assignment clause matters.
Tax and Duty Considerations
GST
A business sale may be GST-free if it qualifies as a “supply of a going concern” under section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (“GST Act”). Broadly, this requires: the sale to include everything necessary to continue running the business; the seller to carry on the business until settlement; the buyer to be registered or required to be registered for GST; and both parties to agree in writing that the sale is of a going concern. Whether a specific sale qualifies depends on the facts, and the Australian Taxation Office’s ruling GSTR 2002/5 sets out the Commissioner’s detailed view.
NSW Transfer Duty
Since 1 July 2016, transfer duty no longer applies to most business assets in NSW, including goodwill, intellectual property and statutory licences (Duties Act 1997 (NSW), s 35). However, duty can still apply where the sale involves land, an interest in land (such as an assigned lease), or certain “goods” (such as plant and equipment) sold together with other dutiable property. Whether duty is payable, and on what value, depends on the specific mix of assets in the sale — this should be confirmed with your solicitor before completion, not assumed.
Licences, Permits and Regulatory Approvals
Many businesses (hospitality, childcare, security, health and food businesses, among others) operate under licences or permits that do not automatically transfer with a sale. Buyers should confirm early in due diligence which licences are required, whether they are transferable, and what lead time any regulator needs to approve a new licensee, as this can affect settlement timing.
Foreign Buyers: FIRB Approval
If the buyer is a “foreign person” as defined under the Foreign Acquisitions and Takeovers Act 1975 (Cth), approval (a “no objection” notification from the Treasurer, administered through the Foreign Investment Review Board, or “FIRB”) may be required before completion, depending on the value and nature of the business. Monetary thresholds are indexed annually and vary depending on the buyer’s country of origin and the sector involved, so this should be checked against the current thresholds published on the FIRB website before a contract is signed.
Restraint of Trade Clauses
Sellers are commonly asked to agree to a restraint of trade clause, restricting them from operating a competing business within a defined area and time period after the sale. Australian courts will only enforce a restraint to the extent it is reasonable to protect the buyer’s legitimate business interests — an overly broad restraint (in area, time or scope) risks being found unenforceable. Restraint clauses should be drafted carefully and tailored to the specific business, not copied from a template.
Due Diligence and the PPSR
Before completing a purchase, buyers should search the Personal Property Securities Register (PPSR) against the seller (and, for a share sale, the target company) to check whether any of the business’s equipment, stock or other personal property is registered as security for a debt. If a security interest is registered and not properly dealt with at settlement, the buyer risks the asset being repossessed by a financier even after paying for it.
Document Checklist
Buyers and sellers are generally asked to prepare or locate the following before a contract can be finalised:
| Document | Why It’s Needed |
| Financial statements and tax returns (2–3 years) | Confirms trading performance for due diligence and price negotiation |
| Lease (and any landlord consent/disclosure statement) | Confirms occupancy rights can be assigned to the buyer |
| List of employees, entitlements and contracts of employment | Assesses Fair Work Act transfer of business exposure |
| Business licences and permits | Confirms what is transferable and any regulator lead times |
| Asset register / equipment list | Identifies what is included in the sale and any finance over it |
| PPSR search results | Confirms no undisclosed security interests over business assets |
| Supplier and customer contracts | Identifies contracts that may need consent to assign |
| Company constitution and share register (share sale only) | Confirms who can validly sell and any restrictions on transfer |
What Not to Do
- Do not sign a contract of sale, heads of agreement or deposit release before a solicitor has reviewed it.
- Do not assume a verbal agreement on price or terms is binding — put everything in writing.
- Do not ignore the lease. An unassignable or soon-to-expire lease can undermine the value of the business you are buying.
- Do not release funds, keys or stock before all conditions of the contract have been satisfied.
- Do not overlook employee entitlements — unpaid leave or superannuation can become the new owner’s problem.
Common Mistakes
- Treating due diligence as a formality rather than a genuine investigation of the business’s financial and legal position.
- Using a generic online contract template that does not reflect the specific assets, lease or employees involved.
- Leaving GST and duty treatment undecided until after the contract is signed, rather than addressing it up front.
- Assuming a restraint of trade clause will be enforced regardless of how broadly it is drafted.
- Not confirming licence transferability until late in the process, causing delays at settlement.
Risk of Delay
Some of the approvals involved in a business sale are time-limited or time-sensitive — for example, a landlord’s 28-day decision period on assignment consent, or FIRB review timeframes for foreign buyers. Leaving legal advice until close to an intended settlement date can reduce the options available to fix problems that turn up in due diligence. Getting advice early generally gives both parties more room to negotiate and resolve issues before they become disputes.
What Happens at Your First Consultation
At an initial consultation with Caspian Legal Pty Ltd, we typically review the heads of agreement or draft contract (if you have one), discuss the structure of the transaction (asset sale or share sale), identify the key risks and approvals relevant to your situation, and outline the likely next steps and timeframe. You do not need to have all your documents ready for a first conversation — we can guide you on what to gather.
Frequently Asked Questions
Do I need a solicitor to buy or sell a small business?
It is not a strict legal requirement, but a business sale involves binding contractual, tax, employment and regulatory obligations. Obtaining legal advice before you sign reduces the risk of costly disputes or unexpected liabilities later.
Is GST payable on the sale of a business?
It depends. If the sale meets the requirements of a GST-free “supply of a going concern” under section 38-325 of the GST Act, GST is generally not payable. If those requirements are not met, GST may apply. This should be confirmed with your solicitor and accountant before the contract is signed.
Do I have to pay transfer duty when buying a business in NSW?
Generally not on the core business assets (such as goodwill, stock and equipment) since 1 July 2016. Duty can still apply if the sale includes land, an interest in land such as an assigned lease, or certain goods bundled with other dutiable property.
What happens to my employees if I sell my business?
This depends on the structure of the sale and whether the Fair Work Act’s transfer of business provisions apply. In some cases, employee entitlements such as accrued leave carry across to the new employer. Specific advice should be obtained for your situation.
Can the landlord refuse to let me take over the lease?
For a retail shop lease, a landlord can only refuse consent to assignment on the specific grounds set out in section 41 of the Retail Leases Act 1994 (NSW), and must respond within 28 days of a complete request. Non-retail commercial leases depend on the specific lease terms.
How long does a business sale usually take to complete?
Timeframes vary significantly depending on due diligence findings, financing, landlord consent, regulatory approvals and (for foreign buyers) FIRB timeframes. Building in realistic time for these steps at the outset helps avoid pressure to settle before issues are resolved.
Speak with Caspian Legal Before You Sign
Buying or selling a business is one of the larger legal and financial decisions many clients make. Caspian Legal Pty Ltd assists buyers and sellers across Hornsby, the Upper North Shore and elsewhere in NSW with contract review, due diligence and completion. Contact our office on 02 7264 3200, visit caspianlegal.com.au, or read more about our work on our Google Business Profile before your next step.
Caspian Legal Pty Ltd
22-28 Edgeworth David Avenue, Hornsby NSW 2077
02 7264 3200
caspianlegal.com.au
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Sources
- Fair Work Act 2009 (Cth), Part 2-8 (Transfer of Business) — legislation.gov.au
- Fair Work Ombudsman, “When businesses change owners” and “Employee entitlements on a transfer of business” — fairwork.gov.au
- A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 38-325 (Supply of a Going Concern) — austlii.edu.au
- Australian Taxation Office, GSTR 2002/5 — Goods and services tax: when is a ‘supply of a going concern’ GST-free — ato.gov.au
- Duties Act 1997 (NSW), s 35 (Abolition of duty on transfers of business assets) — legislation.nsw.gov.au
- Revenue NSW, “Buying a business” and “Sale of business” guidance — revenue.nsw.gov.au
- Retail Leases Act 1994 (NSW), ss 39, 41 and 41A (Withholding consent, procedure for assignment, and disclosure on assignment) — legislation.nsw.gov.au
- NSW Small Business Commissioner, “Transferring your lease” — smallbusiness.nsw.gov.au
- Foreign Acquisitions and Takeovers Act 1975 (Cth) — legislation.gov.au; Foreign Investment Review Board guidance — firb.gov.au
- Australian Financial Security Authority, Personal Property Securities Register — ppsr.gov.au
