A Complete Guide On Due Diligence Law In Australia

Want to buy a new business?

Then, do a due diligence as quickly as possible.

Now, what is due diligence?

It is a familiar term you may hear but may not know what it actually is and why is it necessary. It simply means a detailed homework. More precisely, homework needed to purchase a company. It involves review and verification by buyers of the information supplied by the sellers. Things to investigate in a due diligence include the business’ ability to make profit, condition of equipments, ownership of important assets and documents or presence of any potential competitors nearby.

How To Start Due Diligence?

Legal due diligence in Australia generally confirms title to a number of things like shares in a company or assets in a business, legal structure, terms of financial obligations with law. Seller due diligence is related to highly regulated businesses. It is better for a customer to do his own due diligence process, which is generally more detailed than seller due diligence process.

But, you can have a formal approach of creating a due diligence team with experienced people expert in law and finance. In the team, you are expected to have an account advisor, a due diligence lawyer and a business advisor or broker. The team will review the business’ records, give you valuable advice on the business’ suitability of making profit and make you aware about potential risks.

What Is The Due Diligence Timeframe?

Due diligence occurs as soon as you enters into the sale contract. But you can also have a designated due diligence period mentioned in the contract. Situation may arise when you have to terminate the contract because of uncovering of something that may hinder success of your business.

How Does A Due Diligence Process Work?

There are certain steps that constitute the whole process of due diligence.

You Should Request For The Documents To Review:

The first step for a due diligence process is to request the seller for important documents to review. These include financial statements, product sale history, equipment hire contracts. The request may be done by either you yourself or any member of your due diligence team. It is also recommended to tell the seller to check the whole premises of the business as well as the equipments.

Documentation Will Be Provided By The Seller:

The seller will send you the necessary documents via email, in person or by a member of their own due diligence team. Or, they can upload all the documents on a common platform from where you can download the items.

You Will Opt For Request For Information Process:

You can ask for additional documents and also questions that arise from the documents the seller had sent to you. This process is known as request for information or RFI.

The Seller Will Provide RFI Responses:

Once you ask for additional information and questions, the seller will provide you with the answers shortly. If your due diligence team finds something concerning about the business they will assess and make a report on it and will tell you potential solutions and options that will reduce risks related to the business.

Due Diligence Reports Will Be Prepared And Assessed:

Now, as your due diligence team has all the necessary information in its hand, it can prepare and assess the necessary reports.

You Can Proceed With The Purchase:

Once all the reports are prepared and assessed, now it’s time for you to proceed with the purchase. You should take the final decision once you find that the reports are satisfying and the price is also reasonable. You can negotiate and reduce the price too if it permits.

Where Do You Get Information About The Companies?

As it is important and mandatory to know valuable information about the companies, you must look for those on appropriate platforms. Australian companies are bound to share some details like solvency status, share capital, details of directors to Australian Securities and Investments Commission (ASIC). This information can be found on the website. If you want to know about charges held against a company that include against assets held by a company, you can look into the Personal Properties Securities Register.

The information about ownership of real property, mortgages, charges and other attributes are accessible at the land registry office of each state and territory of Australia. Last but not the least, if you want to know about registered intellectual property like patents and trademarks, look into IP Australia, which is Australia’s intellectual property rights administrator.

Ending Note

While purchasing a business, risks are mostly inevitable. That is why, you need good lawyers who can help you in reducing risks by convincing the sellers to reduce the price in case uncovering of issues or by asking for warranties. Commercial Lawyers Perth can help you in finding experienced commercial litigation lawyers in Perth.