Insight
Due Diligence When Buying a Business
13 September 2026
In short
Due diligence is the investigation you run between signing a heads of agreement and completing the purchase. Legal diligence confirms that the contracts, lease, staff, licences, intellectual property and security position match what you are paying for — and it produces the findings that drive price adjustments, warranties, indemnities and conditions precedent.
Where diligence sits in the deal
- Indicative offer or heads of agreement, with an exclusivity period.
- Data room opens; legal, financial and tax diligence run in parallel.
- Findings are reported and priced — reduce price, restructure, seek indemnity, or withdraw.
- Sale agreement drafted around the findings, with disclosure against warranties.
- Conditions precedent satisfied (landlord consent, franchisor consent, licence transfers).
- Completion and handover.
Diligence run after the sale agreement is signed is largely wasted leverage. Set the exclusivity period long enough to finish it first.
What legal due diligence covers
Corporate and ownership
ASIC extract, share register, past issues and transfers, any shareholders' agreement, options or convertible instruments, minute books, and whether anyone else can claim an interest in the equity. In a share sale, this is the whole foundation of what you receive.
Contracts and revenue
Customer and supplier agreements, term and renewal, assignment and change-of-control clauses, exclusivity, minimum volumes, price-review mechanisms, termination rights and any unfair contract terms exposure. Concentration risk matters: if three contracts are 70% of revenue and all terminate on change of control, the price is wrong.
Premises
The lease — remaining term, options, permitted use, assignment conditions, make-good, bank guarantee, outgoings, and any breach history. A business tied to a location with a short lease and no option is a different asset. See commercial leases.
People
Employment contracts, award and enterprise-agreement coverage, accrued leave and long service liabilities, restraints, contractor arrangements that may be employment in substance, and any current or threatened claims. In an asset sale, agree explicitly who carries accrued entitlements and whether staff are offered continuity of service.
Intellectual property
Registered trade marks and their ownership, business and domain names, software and code ownership (including anything built by contractors without an assignment), licences in and out, and brand use that may infringe someone else. See trade marks and intellectual property.
Security interests and encumbrances
A PPSR search against the company and against key assets, retention of title arrangements with suppliers, equipment finance, and any general security agreement. Unencumbered assets in a spreadsheet are not unencumbered assets on the register.
Licences, permits and compliance
Industry licences and whether they transfer, food or health approvals, franchise disclosure obligations, privacy compliance where the business holds personal information, and any regulator correspondence.
Disputes and liabilities
Current litigation, past settlements, warranty claims, insurance history and gaps, guarantees given by the target, and related-party arrangements that will not survive completion.
Share sale versus asset sale
- Share sale: broader diligence, because you take the entity's whole history including tax and employee liabilities. Contracts and licences usually stay in place, so consent problems are fewer — but change-of-control clauses still bite.
- Asset sale: narrower liability, more transfer mechanics. Every contract, lease and licence may need consent or novation, and the asset schedule has to actually list everything the business needs to keep operating.
Red flags worth stopping for
- The seller resists a reasonable data-room request or provides only summaries.
- Financial records are prepared on a cash basis with material adjustments explained verbally.
- Key relationships are personal to the seller, undocumented, and not restrained after completion.
- Goodwill depends on a licence, franchise or lease that the counterparty can refuse to transfer.
- Intellectual property central to the business is owned by another entity or an individual.
See also five legal red flags that kill deals — the same issues, read from the other side of the table.
How we run it
We scope diligence to the deal size rather than running a template over a small acquisition. You get a request list for the data room, a findings report written in plain terms with each issue ranked by commercial impact, and specific recommendations for the sale agreement. Fees are agreed before we start. See business sales and acquisitions.
Frequently asked questions
What is legal due diligence?
Legal due diligence is a structured investigation of a target business before completion: its contracts, leases, employees, licences, intellectual property, litigation, securities and compliance history. The purpose is to confirm the business is what the seller says it is and to identify risks that need a price adjustment, a warranty, an indemnity or a walk-away.
How long does due diligence take?
For a straightforward small-business acquisition, two to four weeks once the data room is open. Larger or regulated businesses, multi-site leases and messy corporate records extend it. The exclusivity period in the heads of agreement should be set with that in mind.
Is due diligence different for a share sale and an asset sale?
Materially. In a share sale you inherit the company with all its history — tax, employees, past litigation, guarantees. Diligence has to be broad. In an asset sale you buy identified assets, so the focus shifts to whether the assets are clean, transferable and complete, plus lease and contract assignment consents.
Can I rely on the seller's warranties instead of doing diligence?
Not safely. A warranty is a promise to pay damages later, which is only as good as the seller's ability to pay and your willingness to sue. Diligence lets you fix the price or the structure now. In practice the two work together: diligence findings shape the warranties and the disclosure schedule.
What are the most common deal-killers?
A lease that cannot be assigned or is close to expiry with no option; revenue concentrated in contracts that terminate on change of control; employee entitlements or contractor misclassification not reflected in the price; unregistered or third-party-owned intellectual property; and PPSR-registered security over assets the seller says are unencumbered.
Keep reading
Two ways to start
Get a fixed fee before any work starts.
Answer a few short questions, attach your documents if you have them, and a senior lawyer replies with the scope and the price.
Know what you need? Request a fixed-fee quote and upload your documents. Not sure of scope? Book a short call with a senior lawyer instead.
Buying a business?
Send us the information memorandum or heads of agreement and we'll scope diligence to the deal.
Know what you need? Request a fixed-fee quote and upload your documents. Not sure of scope? Book a short call with a senior lawyer instead.