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’s shoes, taking over their contracts, customers, staff, and obligations. Unlike a share sale, where you take the company “as is,” an asset purchase lets you choose which assets and liabilities you want. That flexibility is powerful, but it also brings risk. Get it wrong, and you might end up with half a business, or liabilities you never meant to take on.
Below are some of the key issues every buyer and seller should understand 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 right approvals aren’t in place. Before an asset can legally move across, you often need:
1. Landlord consent to transfer a lease.
2. Supplier or customer approvals to assign key contracts.
3. Bank or financier consent if security interests exist.
4. Board or shareholder approval, and in some cases, regulator sign-off.
If these consents are not obtained, the buyer may not get the very assets they thought they were paying for. A deal timetable should always build in time to line these up early.
2. What Exactly Are You Buying?
An asset purchase agreement must set out the scope with precision. 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, certain debtors).
3. Purchase price adjustments: for example, stocktake on completion.
4. Earn-outs: a mechanism where part of the price depends on future performance.
Poorly drafted clauses can leave gaps or overlap, leading to conflict. Clear schedules are vital.
3. Employees Don’t Transfer Automatically
A common misconception is that employees simply “roll over” to the new owner. They don’t. The seller ends their employment, and the buyer decides whether to offer them new employment. This raises issues around:
1. Continuity of service: do you recognise past years of service?
2. Leave entitlements: will these transfer, or will the seller pay them out?
3. Culture fit: do you want all staff, or just some?
Failing to manage this well can sour relationships before you’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 the company’s liabilities. You only take those you agree to. But that means you need to be explicit. Consider:
1. Trade creditors: are you paying suppliers or is the seller clearing accounts?
2. Warranties and indemnities: does the seller stand behind the accuracy of what they’ve told you?
3. Litigation risks: are there claims brewing against the business?
A careful liability schedule avoids the nasty surprise of paying for yesterday’s problems.
5. Restrictive Covenants: Protecting the Business You’ve Bought
Without protection, the seller could open a competing business next door and take back the customers you’ve just paid for. That’s why restrictive covenants (non-compete, non-solicitation, and confidentiality clauses) are critical. They must be reasonable in scope, geography, and duration to be enforceable under Australian law.
6. Structuring the Deal: One Size Does Not Fit All
Sometimes you’re buying the whole business; sometimes just selected assets. Occasionally, the seller needs to restructure before completion to move assets into the right entity. Each scenario has tax, stamp duty, and GST consequences. Getting structuring advice early avoids unexpected costs.
The Bottom Line
An asset purchase can be the cleanest way to acquire a business, but only if it’s done right. The devil is in the detail: consents, employee arrangements, liability allocation, and enforceable protections. Miss a 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 these issues to chance. A well-structured asset purchase agreement can protect you from costly disputes and ensure you get the business you paid for.
Book a consultation with me to discuss your transaction. Together we can review the risks and structure the deal properly.
Buying a business? See Buying a Business in Queensland.
Want my view on your own situation?
Book an initial consultation: up to two hours with me by phone for a fixed fee of $1,650 (including GST), then a short written note of my advice and next steps. If my conflict check means I can't act, I'll refund your fee in full. To check anything first, email
info@klaw.com.auor call
(07) 3103 3199.
Joe Kafrouni, Accredited Specialist in Business Law, Kafrouni Law
Disclaimer: This article is general information only and is not legal advice. Before acting on it, get advice on your own circumstances. To the extent the law allows, Kafrouni Law accepts no liability for any loss arising from reliance on it. This article is the copyright of Kafrouni Law.
What People Say
Book an initial consultation
An initial consultation is the best way for us to find out whether, and how, I can help. It suits business owners and directors facing a decision that matters. You get my considered view of your situation, not just a first impression.
The fee is a fixed $1,650 (including GST). It covers a phone consultation of up to two hours, plus up to one hour of my time to consider the material you send me beforehand and to prepare my written note afterwards. Here is how it works:
1. When you book, you tell me briefly what the matter is about and who else is involved, so I can carry out a conflict check and confirm I’m free to act. If I can’t act for you, I’ll refund your fee in full.
2. I tell you what information and documents I’d like to see, and I consider them before we speak.
3. We talk it through by phone. I give you my initial advice, the options I see and what I’d do in your shoes.
4. Afterwards, I send you a short written note of my advice and the next steps I recommend.
If I can help further, I’ll explain how. If I can’t, I’ll say so. You are under no obligation to engage me further. If your matter needs more than this, I’ll send you a proposal setting out how I can help and an estimate of my fees. No further work starts until you accept it.
I keep only a limited number of consultation times. If none suits you, or you’d like to check anything before booking, email info@klaw.com.au and I’ll do my best to accommodate you.