- Know what you are actually buying
- Get the website, software and IP transferred in writing
- Secure the customers and the data
- Keep the suppliers and their terms
- Check what happens to the staff
- Lock the seller out of competing
- Test the numbers the seller gives you
- Where an Artificer Legal lawyer fits in
- The goodwill is only worth what the contract transfers
You have found the online store you want to buy. The website looks sharp, the repeat customers keep coming back, and the social media accounts have audiences you would love to inherit. But an online business has no shopfront, no stockroom and often no premises at all. Everything it is worth lives in things you cannot walk around: a domain name, software, customer data, supplier arrangements and goodwill. None of it moves to you automatically when the money changes hands, so the sale contract is where the deal is actually made or broken.
Know what you are actually buying
Before any clause is negotiated, the structure has to be settled. In an asset sale you buy a defined list of assets, usually through a business sale agreement, and you can leave behind liabilities you do not want. In a share sale you buy the company that runs the business, which means you inherit its contracts, debts, tax history and any legal problems along with it. Either structure can work for an online business, but they are very different deals.
Whatever the structure, the contract needs a schedule that lists every asset in the sale, item by item. "The business" is not a defined thing in law, so the schedule is what you actually receive. Expect to negotiate over what is included and what is not: stock, receivables, the brand, the website, the domain, the customer database and the goodwill itself. An accountant can also tell you how GST and duty apply to the structure you choose, because that varies with the deal.
Get the website, software and IP transferred in writing
Most of the value sits in digital assets, and each one transfers its own way. The practical rule is that nothing moves unless the contract says so and the platform or registrar allows it. Work through the list asset by asset:
- Domain name: it moves through its registrar, so name the domain in the contract and require the seller to complete the transfer before or at settlement.
- Website, code and custom software: these are intellectual property, and they need an express written assignment, not just a mention in the sale.
- Social media and marketplace accounts: platforms such as Instagram, Shopify, Amazon and Etsy have their own rules, and some will not allow an account to be transferred at all. Plan for the seller to cooperate during a transition period, and for credentials and admin access to change hands.
- Content, branding and customer data: the copy, images, trademarks and database behind the store should each appear on the asset schedule.
Copyright deserves particular attention. Under s 35 of the Copyright Act 1968 (Cth), the author of a work owns the copyright in it. If an employee built the website in the course of employment, the employer owns it. But if an outside developer or agency built it, the developer owns the copyright unless they have assigned it in writing; a commissioned work does not automatically belong to the person who paid for it. Before you sign, confirm who owns the code, and make a written assignment of all intellectual property part of the sale, backed by a warranty that the seller owns everything on the asset schedule or has the right to use it.
Secure the customers and the data
Repeat customers are usually the most valuable part of an online business, so the contract should require the seller to hand over the customer database and introduce you to the significant customers. But that database is personal information, and the transfer is regulated. Under the Privacy Act 1988 (Cth), a business with an annual turnover above $3 million must comply with the Australian Privacy Principles. Smaller businesses are generally exempt, but the exemption does not apply if the business trades in personal information, provides health services or is a contracted service provider for a Commonwealth contract, among other exceptions in s 6D of the Act. Since the buyer steps into the seller's shoes with the data, check that the customers were collected on a basis that lets the list change hands, and that the privacy policy supports the new owner's use of it. If you plan to keep emailing the list, electronic marketing is separately regulated, so take advice on the consent base before the first campaign goes out.
Keep the suppliers and their terms
Most online businesses lean on a handful of suppliers: a fulfilment warehouse, a dropshipper, a payment processor or a freight provider. The contract should require the seller to introduce you to those suppliers and give you copies of the supply contracts, so you can see the terms you are stepping into. Keep in mind that a supplier contract generally cannot simply be assigned to you without the supplier's consent. The usual path is a novation, where the supplier, the seller and you all agree that you take over the contract, so build in time for that consent before settlement.
Check what happens to the staff
If the business has employees, their entitlements can follow the sale. Under the Fair Work Act 2009 (Cth), a transfer of business occurs when an employee's job with the seller ends and, within three months, they start with you doing the same or substantially the same work, and there is a connection between the two businesses, such as a transfer of assets. Where that happens, a transferable instrument such as an enterprise agreement can cover you and the transferring employees, and you may need an application to the Fair Work Commission to move staff onto your own arrangements. Ask for a list of employees and contractors, check for any enterprise agreement or award issues, and confirm how accrued entitlements are being dealt with before you commit.
Lock the seller out of competing
A restraint of trade clause stops the seller from setting up in competition after the sale, but it is only enforceable to the extent it protects a legitimate interest, such as the goodwill you have just paid for, and is reasonable between the parties. Australian courts assess reasonableness at the date the contract was signed, and the outcome depends on the circumstances of the deal, as the New South Wales Court of Appeal explained in Sidameneo (No 456) Pty Ltd v Alexander [2011] NSWCA 418.
For an online business, a purely geographic restraint is a weak tool. The seller can set up a competing store in another state and reach your customers just as easily from there. That is why cascading restraints are common: a series of options running from Australia-wide down to a local radius, each expressed to operate only if the wider ones fail. In NSW the position is helped by s 4 of the Restraints of Trade Act 1976 (NSW), which lets a court uphold a restraint to the extent it is not against public policy, so an over-broad clause can be read down rather than struck out entirely.
Geography aside, the clauses that often matter most online are non-solicitation, stopping the seller from poaching your customers and staff, and confidentiality, protecting the customer lists and know-how you just bought.
Test the numbers the seller gives you
The figures behind the asking price deserve the same scrutiny as the assets. If the seller tells you the store turns over a certain amount, or has a certain number of customers, those statements are made in trade or commerce, and s 18 of the Australian Consumer Law, which sits in Schedule 2 of the Competition and Consumer Act 2010 (Cth), prohibits misleading or deceptive conduct. That gives you a remedy if you are misled, but it is a poor substitute for checking first. Ask to see the payment processor statements, platform analytics and supplier invoices, and verify the traffic and conversion figures against the records.
The contract should then back the claims up with warranties: that the financial records are accurate, that the seller owns the assets being sold, and that the business has complied with the laws that apply to it, including privacy and consumer law. If a warranty turns out to be false, you have a claim. Without one, you may have nothing.
Where an Artificer Legal lawyer fits in
Some judgement calls in this article are yours to make, and some are a lawyer's. A lawyer can help you decide between an asset sale and a share sale, review the seller's draft agreement, and negotiate the asset schedule, the warranties and the restraint clause. They can also draft the intellectual property assignment, chase the consents needed for supplier contracts and platform accounts, and check the privacy and employment angles before settlement. That work is what turns "buying a business" from a hope into a transfer of everything you are paying for.
The goodwill is only worth what the contract transfers
The sharpest point in this article is also the easiest to miss. In a bricks-and-mortar sale you can see the goodwill you are buying. Online, the goodwill is a bundle of intangibles, and each one transfers only if the contract says so and the law permits it. Pay for the website without an IP assignment and you may own a shop with no key. Pay for the customer list without checking the privacy basis and you may have bought data you cannot lawfully use. Pay for the business without an enforceable restraint and the seller can rebuild the same store next week. None of this is fixed by good intentions, and all of it is fixed in the contract.
In short, settle the structure, list every asset, transfer the IP and accounts in writing, check the data, suppliers, staff and numbers, and lock the seller out of competition. A lawyer who does this regularly can run the checklist with you so the deal delivers what you are paying for.