A Legal Guide to Selling Your Business

Selling a business involves far more than just finding a buyer and agreeing on a price. From vendor due diligence to contract negotiations, the sale process is filled with potential risks and complexities. In a recent episode of The Bottom Line, corporate lawyer Craig Sanford of Sierra Legal shares his expert advice on what business owners need to know before selling.

From reviewing company documents to navigating final settlement, this guide will help you minimise risks, increase your sale value, and move forward with confidence.

Step 1: Conduct vendor due diligence

Before engaging buyers, it’s crucial to get your “backyard in order” through vendor due diligence. This can help uncover and resolve potential legal, financial, and compliance issues before they become obstacles during negotiations with potential buyers.

Key areas of the vendor due diligence:

• Corporate and Legal Documents:
  Ensure company registers, shareholder agreements, constitutions, and board resolutions are complete and up-to-date.

• Personal Property Securities Register (PPSR):
  Remove outdated security interests and check that all business assets are free from unexpected encumbrances and security interests.

• Intellectual Property (IP) Protection:
  Confirm ownership of business names, trademarks, patents, copyrights, and domain names. Renew any lapsed registrations and validate any IP licensing agreements.

• Customer and Supplier Contracts:
  Ensure key agreements are signed, enforceable, and free from onerous termination or assignment/change of control clauses.

• Employee Agreements and Compliance:
  Update all employment contracts, resolve wage disputes, and address any potential compliance or legal claims.

• Commercial Leases and Property Agreements:
  Review lease terms and check if landlord consent is required for assignment (including change of control).

• Litigation and Regulatory Issues:
  Identify and resolve any pending disputes, regulatory issues, or outstanding tax matters. Confirm that all licences and permits required to conduct the business are current.

Addressing these matters in advance builds buyer confidence, streamlines buyer due diligence, and can increase your business’s value.

Step 2: Choose the structure of the transaction

There are two primary methods of structuring a sale transaction:

• Share Sale:
  The buyer purchases shares in your company, which continues to hold all assets, contracts, and liabilities of the business. This structure often simplifies the transaction for the seller and can offer tax benefits.

• Asset Sale:
  The buyer acquires specific business assets (such as equipment, stock, IP) while the seller retains unwanted liabilities. This can allow for cleaner separation but often requires more extensive negotiation with, and coordination of, third parties (such as customers, suppliers, regulators, landlords and employees).

Choosing the best structure requires legal and tax advice to ensure it aligns with both parties’ financial, commercial, and legal objectives.

Step 3: Formalise the sale through legal contracts

Once a buyer is found, the formal legal process begins.

1. Sign a Non-Disclosure Agreement (NDA)

Before sharing confidential information, require the buyer to sign an NDA to protect your sensitive business data.

2. Provide an Information Memorandum (IM)

Prepare a detailed IM describing your business, operations, financials, and growth opportunities.

3. Negotiate and sign a heads of agreement or term sheet (Optional but Recommended)

This non-binding document outlines key commercial terms (price, structure, conditions) before full contract drafting commences, to ensure the parties are aligned on deal terms at an early stage.

4. Buyer conducts due diligence

The buyer undertakes legal, financial, and operational due diligence, examining all aspects of your business.

5. Draft and Negotiate the Sale and Purchase Agreement (SPA)

The SPA is the core legal contract and should cover:

• Purchase price and payment terms

• Warranties and indemnities

• Restraint of trade and non-compete clauses

• Conditions precedent (e.g., regulatory approvals, lease assignments)

Negotiations at this stage are critical to ensure the final agreement protects your interests while meeting the buyer’s requirements.

6. Obtain third-party consents

Transfer or assign material contracts (including leases)  and gain necessary regulatory and counterparty consents and approvals.

7. Completion and settlement

On settlement day, funds are transferred, ownership legally passes to the buyer, and relevant documents (such as share transfer forms, board minutes, deeds of assignment) are executed. Some sellers may agree to stay involved in the business temporarily to assist with the business transition or to ensure any deferred purchase price is received.

Step 4: Protect your interests through legal safeguards

Both buyers and sellers must safeguard their post-transaction positions through proper contractual protections:

• Warranties and Indemnities:
  Buyers typically require sellers to warrant that a particular state of affairs exists in relation to key aspects of the business. The scope of the sellers’ warranties will likely be the subject of substantial negotiation. The buyer may also seek to include indemnities from the seller to the buyer, to cover specific, known or potential liabilities which fall outside the responsibility of the buyer, with the intent that the risk be allocated to the sellers. Sellers should negotiate limitations to avoid open-ended liability for the buyer to bring warranty and/or indemnity claims.

• Restraint of Trade Clauses:
  Buyers often require sellers to agree not to compete with the business for a defined period and location after the sale to protect the goodwill of the business being purchased.

Legal advice is essential to ensure these protections are fair, commercially reasonable, and enforceable.

Managing risks during the sale process

Even well-prepared transactions can face hurdles. Business performance may decline during the sale, potentially affecting buyer confidence and valuation. Contract negotiations often drag on longer than expected, delaying timelines and introducing uncertainty. In some cases, poor structuring can lead to unexpected tax liabilities, creating financial strain or jeopardising the deal altogether.

These challenges can disrupt the sale process, erode trust between parties, and increase the risk of deals falling through. It’s important to remain operationally focused, maintain clear communication throughout negotiations, and seek early guidance from legal and financial experts.

By proactively preparing and engaging experienced legal and financial advisors, you can anticipate problems and maintain momentum towards a successful outcome.

Selling a business is a complex legal journey, not just a financial transaction. By conducting a vendor due diligence, structuring the transaction properly, formalising agreements carefully, and protecting your interests, you can achieve a smoother, faster, and more fruitful sale.

Thinking about selling your business?
Before you go to market, book a strategic consult with our Corporate Advisory team to ensure your business is legally and financially prepared for sale.