Buying a Business? Watch Out for These Asset Purchase Pitfalls

Buying a Business? Watch Out for These Asset Purchase Pitfalls

When you buy a business, you’re not just buying bricks,desks, and stock. You’re buying the right to step into the seller’sshoes—taking over their contracts, customers, staff, and obligations. Unlike ashare sale, where you take the company “as is,” an asset purchase lets youchoose which assets and liabilities you want. That flexibility is powerful, butit also brings risk. Get it wrong, and you might end up with half a business—orliabilities you never meant to take on.

Below are some of the key issues every buyer and seller shouldunderstand before signing an asset purchase agreement.

1. Approvals and Consents: The Hidden Deal Breakers

Most deals don’t fail on price; they fail because the rightapprovals aren’t in place. Before an asset can legally move across, you oftenneed:

1.     Landlord consent to transfer a lease.

2.     Supplier or customer approvals to assign keycontracts.

3.     Bank or financier consent if security interest exist.

4.     Board or shareholder approval, and in somecases, regulator sign-off.

If these consents are not obtained, the buyer may not getthe very assets they thought they were paying for. A deal timetable shouldalways build in time to line these up early.

2. What Exactly Are You Buying?

An asset purchase agreement must set out the scope withprecision. Ambiguity invites disputes later. Key drafting areas include:

1.     Which assets are included (stock, IP, goodwill,equipment, databases).

2.     Which assets are excluded (cash at bank, certaindebtors).

3.     Purchase price adjustments—for example, stocktake on completion.

4.     Earn-outs—a mechanism where part of the pricedepends on future performance.

Poorly drafted clauses can leave gaps or overlap, leading toconflict. Clear schedules are vital.

3. Employees Don’t Transfer Automatically

A common misconception is that employees simply “roll overt" o the new owner. They don’t. The seller must terminate them, and the buyermust offer re-employment. This raises issues around:

1.     Continuity of service: do you recognise pastyears of service?

2.     Leave entitlements: will these transfer, or willthe seller pay them out?

3.     Culture fit: do you want all staff, or justsome?

Failing to manage this well can sour relationships beforeyou’ve even opened the doors under new ownership.

4. Liabilities: Take Only What You Intend To

Unlike a share sale, you don’t automatically inherit all thecompany’s liabilities. You only take those you agree to. But that means youneed to be explicit. Consider:

1.     Trade creditors: are you paying suppliers or isthe seller clearing accounts?

2.     Warranties and indemnities: does the sellerstand behind the accuracy of what they’ve told you?

3.     Litigation risks: are there claims brewingagainst the business?

A careful liability schedule avoids the nasty surprise ofpaying for yesterday’s problems.

5. Restrictive Covenants: Protecting the Business You’veBought

Without protection, the seller could open a competingbusiness next door and take back the customers you’ve just paid for. That’s whyrestrictive covenants—non-compete, non-solicitation, and confidentialityclauses—are critical. They must be reasonable in scope, geography, and durationto be enforceable under Australian law.

6. Structuring the Deal: One Size Does Not Fit All

Sometimes you’re buying the whole business; sometimes justselected assets. Occasionally, the seller needs to restructure beforecompletion to move assets into the right entity. Each scenario has tax, stampduty, and GST consequences. Getting structuring advice early avoids unexpectedcosts.

The Bottom Line

An asset purchase can be the cleanest way to acquire abusiness—but only if it’s done right. The devil is in the detail: consents,employee arrangements, liability allocation, and enforceable protections. Missa step, and you risk paying for something you can’t actually use, or worse,liabilities you never intended to take on.

How I can help?

If you’re buying or selling a business, don’t leave theseissues to chance. A well-structured asset purchase agreement can protect youfrom costly disputes and ensure you get the business you paid for.

Book a consultation with me, Joe Kafrouni, to discuss yourtransaction. Together we can review the risks, structure the deal properly, andgive you peace of mind as you move forward.

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