Business sale transactions may be structured as either an asset sale or a share sale (whether by way of a full acquisition or a partial acquisition). If a business is conducted by a company, the buyer may chose to buy the shares in the company. The company itself will continue to hold all of the assets and liabilities of the business. Alternatively, if the business is not conducted through a company or if the buyer is concerned about the potential liabilities of the company conducting the business, the sale may be structured as a sale of the assets of the business so that the liabilities of the business substantially remain with the seller.

There are advantages and disadvantages to both asset and share sales. The type of sale is typically determined based on considerations such as tax, stamp duty and the potential risks and liabilities of the business.

Private acquisitions in Australia will be governed by the general principles of contract law. Certain provisions of the Corporations Act 2001 (Cth) may be relevant along with more specific legislation on employment, competition, foreign investment, tax, property and environment, and other matters, depending on the nature of the business.

See Share sale and asset sale.

Due diligence (commonly known as “DD”) is the process of investigating a potential investment such as a business acquisition, the purpose of which is to assess the risk associated with the investment. Due diligence will usually address the legal, commercial, financial, accounting and tax features of the business. Specialist reviews may also be required (for example, in relation to environmental risk) depending on the nature of the company or assets being acquired.

Due diligence is more commonly conducted by a potential buyer, however, it can also be undertaken by the seller who may then provide the results to the buyer.

The buyer due diligence process will normally involve enquiries by the buyer (investor) in relation to the assets and liabilities of the investment. Assets may include trade marks and other intellectual property, stock, plant and equipment and contracts, including valuable supply, distribution and funding arrangements. The enquiries may reveal restrictions on transfer or other matters which affect whether the investment can proceed or the price which the buyer is prepared to pay. The due diligence process may involve either the seller providing documents in response to preliminary enquiries prepared by the buyer, or, more usually, the seller placing material documents and financial information in a data room (virtual or hard copy).

The legal due diligence process normally culminates in the buyer's lawyers preparing and submitting to the buyer (and potentially its financiers) the legal review report, which sets out the review results and highlights any material issues.

The guidance note focuses on buyer legal due diligence.

See Due diligence.

When buying shares or assets, transaction documentation will be entered into to contractually bind the buyer and the seller to the terms upon which the sale is transacted and the price is paid by the buyer.

A Sale and Purchase Agreement (or "SPA") is the key document in any sale transaction. It sets out agreed terms (such as what is being sold and at what price, warranties and indemnities and non-compete undertakings) and certain procedures that must be followed (such as conditions that must be satisfied prior to the sale being effected and how disputes are to be dealt with).

SPAs commonly include warranties given by the seller to the buyer. A warranty is an assurance from the seller about an aspect of the sale such as the power of the seller to sell and give clear title to the assets, the financial position and compliance with relevant laws and other obligations particularly in areas such as the environment and tax where breach could lead to significant loss or liability for the buyer. A breach of warranty gives rise to a claim for damages.

A buyer may also require that the seller indemnifies the buyer if certain liabilities arise in relation to the business in the future. The seller must reimburse the buyer for the loss arising so that the quantum of damage based on the contractual rules of foreseeability of loss is not a matter needing to be proved by the buyer.

See Sale documentation.