Business Sale Contracts in Australia: Key Clauses to Understand
The sale contract is the most complex document in the deal
A Sale of Business Agreement (or Business Sale Agreement) is the legally binding contract that sets out every condition of the transaction. Signing this contract without understanding each clause — or without a solicitor reading it first — is one of the biggest legal risks in business.
This contract is usually long and technical. The aim of this article is not to help you draft or read it yourself — it is to help you know what to ask when working with your solicitor.
Defining the “assets” being sold
The first and most important clause: exactly which assets are being bought and which are not. There should be no ambiguity here.
Schedule of assets: The contract should include a detailed list — equipment, inventory, goodwill, intellectual property (the brand name, website, domain), customer contracts, the phone number, the business email, and so on.
Excluded assets: The owner’s assets that do not come with the sale — for example, the owner’s personal car used for the business, or personal property kept at the office.
A buyer should examine this closely: is there anything that creates value, which you think you are buying but which is not on the list?
Price and payment structure
Total price and how it is allocated: Not just “how much” but also “how much for which assets”. This allocation affects the tax of both parties and must be declared consistently with the ATO.
Deposit: Usually paid on signing or within a few days. The terms for refunding the deposit if the deal does not complete (because a condition precedent is not met) must be clear.
Completion payment: The remaining amount paid on the completion date.
Vendor finance or holdback: In some deals the seller agrees to receive part of the price over time (vendor finance) — usually with interest. Or part of the price is held back (a holdback) and paid once certain conditions are met (for example, revenue reaching a set level in the first 12 months).
Conditions Precedent
The contract does not complete immediately — there are conditions that must be satisfied first:
- The landlord agrees to an assignment of lease
- The landlord signs a new lease with the buyer
- Key staff sign contracts with the buyer
- Licences are transferred, or the buyer holds their own
- The buyer’s finance is approved
If a condition precedent is not met within the timeframe, it can usually be extended, or one party has the right to terminate. This clause needs to be clear about the consequences if a condition is not satisfied.
Warranties and Representations
The seller usually has to give a series of warranties — statements that certain information is true:
- The business is operating normally (no material adverse changes)
- There are no ongoing legal disputes
- The financial records reflect reality
- There are no obligations beyond those disclosed
- The licences are valid and in force
If a warranty is false and the buyer suffers loss after the purchase, they may sue the seller for breach of warranty.
Indemnity: Some clauses allow the buyer to recover from the seller for specific losses arising after the purchase — for example, the business’s ATO tax debt from before the sale.
Non-compete and Restraint of Trade
The seller usually has to agree not to open a competing business within:
- A set geographic area (for example, within a radius of X kilometres)
- A set period (usually one to five years)
- The same specific industry
A clause that is too broad may be regarded by a court as unreasonable and refused enforcement. It needs to balance protecting the buyer against not overly restricting the seller’s right to work later.
Handover Period
The seller usually agrees to stay on and provide support for a period after the sale — introducing customers, training staff, explaining processes. The clause needs to be clear: how long, doing what, whether it is paid extra, and what happens if it cannot be carried out.
Why you need your own solicitor
The seller’s solicitor drafts a contract that protects the seller. The buyer’s solicitor advises the buyer. You cannot use the same solicitor — the conflict of interest is unavoidable.
Your solicitor does not just “read” the contract — they negotiate the important clauses, make sure the conditions precedent are carried out properly, handle completion, and protect you if a dispute arises afterwards.