What you're really buying when you buy a creative agency

Most of what you pay for when you buy a creative agency is invisible. The name clients recognise, the portfolio that wins pitches, the client relationships, the team that produces the work: none of it shows up on an asset register. Each piece is held by a different legal mechanism, and none of them move to you by default. Working out what is actually included in the sale, and how each part changes hands, is what separates a clean purchase from one that unravels in the first year.

Decide first: are you buying the business or the company?

Before anything else, settle the structure of the deal, because it decides everything downstream. There are two ways to buy a creative agency, and they are not close to the same thing:

• Asset purchase: You buy the assets the agreement lists: goodwill, the brand and trade marks, client contracts, work product, equipment. Liabilities the vendor built up stay with the vendor, subject to the warranties you negotiate. The catch is that nothing moves unless the agreement names it. Goodwill, in particular, only exists if the contract says you are buying it.
• Share purchase: You buy the company itself, usually all of its shares. You step into its contracts, its staff, its intellectual property, and also its debts, disputes and regulatory history. You inherit the company's past along with its clients.

Creative agencies are usually bought as asset sales, because the buyer wants the intangibles and not the vendor's baggage, and because the assets that matter, client contracts and IP, often sit across different entities anyway. But a share purchase can be the cleaner route where the agency's client contracts and employees all live in one company and you are comfortable taking the company's history on. The choice affects which consents you need, which warranties matter and how the price is structured, so it is worth making deliberately rather than leaving it to the vendor's advisers.

Getting the brand across: business name and trade marks

The agency's name is usually its most valuable asset, and it is also the one buyers misunderstand most often.

A business name is not property. It is a registration on ASIC's business names register, and when a business is sold the registration can be transferred to the buyer. The process runs through ASIC Connect: the current owner starts the transfer and receives a transfer number, which the buyer then uses to register the name in their own entity. Until the buyer has registered, they should not trade under the name.

Registration of a business name only records who is trading under it. It does not stop a competitor registering and using a similar name, and it does not give you a right to sue for copying. That protection comes from a registered trade mark, or from the goodwill behind an unregistered name.

If the agency has a registered trade mark over its name or logo, make the assignment part of the sale. Under s 106 of the Trade Marks Act 1995 (Cth), a registered trade mark can be assigned with or without the goodwill of the business, and the assignment must be recorded: s 109 requires the new owner to apply to IP Australia for the assignment to be entered in the Register. Until that happens, the public register still shows the vendor as the owner, which matters if you ever need to enforce the mark. Check for pending applications too, and for unregistered marks that only have goodwill behind them, because those transfer differently and are harder to protect.

Owning the work: where the copyright actually sits

The portfolio is where creative agency deals get messy, because the people who made the work are not always the people who own it.

Start with the agency's own staff. Under s 35(6) of the Copyright Act 1968 (Cth), copyright in written and artistic work made by an employee in the course of employment belongs to the employer. So the copy, campaigns and designs your employees created are the agency's to sell, subject to what its employment agreements say.

Freelancers and contractors are different. Copyright starts with the author, and under s 196(3) of the Copyright Act an assignment only takes effect if it is in writing and signed by the assignor. If the agency never obtained written assignments from the contractors it used, those contractors still own the copyright in work you think you are buying. Before you pay for a portfolio, ask to see the assignment clauses.

Two further points buyers miss. First, moral rights: the right to be credited and the right of integrity belong to the individual creators and cannot be assigned at all (s 195AN of the Copyright Act). The designers' rights to attribution travel with the work, so you will be managing those rights, and consents from creators, long after settlement. Second, client work: in many client relationships the client owns the final work product and the agency holds only a licence. Check the agency's client contracts for what is actually owned and for change-of-control or assignment clauses that require client consent before contracts can move to you.

The team: what happens to staff and their entitlements

Unless you are buying the shares, the employees do not automatically become yours. You decide which roles you will offer, and that decision carries legal consequences in both directions.

If you hire a vendor's employee within three months of their termination, the work is the same or substantially the same, and there is a connection between the two businesses (an asset transfer usually provides it), the transfer of business rules in Part 2-8 of the Fair Work Act 2009 (Cth) (see s 311) apply. Continuous service carries over for entitlements such as annual leave, and a transferable enterprise agreement can bind you from day one. If you are taking the team on, check the vendor's agreements and awards before you make the offers, not after.

If the employees are not re-employed, the vendor generally owes statutory redundancy pay under the National Employment Standards (s 119 of the Fair Work Act), scaled to each employee's length of service. Make sure the sale agreement says who carries that cost if the vendor cannot or will not pay.

There is also a commercial point that is easy to bury. In a creative agency the client relationships often sit with the individuals, not the entity. Retention offers to key creative and account staff are frequently the highest-value part of the purchase price. Just remember that the restraint clauses you put in those offers are governed by the same rules as the vendor's restraint below.

Keeping the vendor and key staff from competing

Buying an agency is a poor deal if the vendor walks out and opens the same shop across the road with your client list. Restraint of trade clauses are the answer, but they only work if they are drafted to survive scrutiny.

At common law, a restraint of trade is void unless it protects a legitimate business interest and is reasonable in scope, duration and geography. The test is applied differently depending on who is restrained.

A restraint on the vendor is the easiest to justify. The buyer has paid for the goodwill, so a vendor who agrees not to solicit your clients or operate a competing agency within a defined area for a defined period is generally protected by the courts, provided the restraint goes no further than protecting what you bought. Get it into the sale agreement, and make sure it covers the vendor's related entities and the directors personally.

A restraint on an employee is much harder to enforce. It must protect a genuine interest, such as client relationships or confidential information, and must be no wider than necessary; a blanket clause preventing a designer from working in the industry will usually fail. Two practical steps: check the restraint clauses in the vendor's existing employment contracts before you rely on them, because you inherit their enforceability problems, and put tailored restraints into any retention offers you make to key staff.

Getting the deal documented: how Artificer Legal can help

None of the above happens by handshake. The sale of business agreement (or share sale agreement) is the document that defines what is in the deal and what is not: the asset list, the allocation of the price, the warranties the vendor gives about the business, and the conditions that must be satisfied before settlement. Around it sit the trade mark assignment and its recordal, the copyright assignment schedule, the business name transfer, client consent letters and the employment and retention documents.

This is also where the judgement calls live. Whether to buy assets or shares, how the price is allocated across goodwill, IP and plant for GST and capital gains purposes, which warranties to demand about client contracts and pending disputes, and whether the vendor's restraint will hold up are all decisions that depend on the specific agency and the specific deal. An Artificer Legal practitioner can review the structure, run due diligence on the IP and contracts, and draft the sale and assignment documents so that what you think you are buying is what the paperwork delivers.

The part of the deal you can't shake hands on

With a creative agency, the value is in things that cannot be handed over: recognition, relationships, reputation and work product. None of them move unless the agreement names them, and each moves through a different mechanism: a business name transfer, a trade mark recordal, a copyright assignment, an employment offer, a restraint clause. The buyer who assumes the business comes as a bundle is the buyer who discovers after settlement that the name is still registered to the vendor, the freelancer owns the campaign work, and the account director is fielding calls for the new competitor shop.

The checklist in practice: settle the asset or share structure first, then confirm the brand transfers, verify who owns the work, plan the employee handover, and negotiate restraints that will hold up. Each of those steps is a document, and a lawyer's review of that document set is where a purchase like this is won or lost.