Business Sale Agreement

Selling a business

Selling a business is a big decision. You have probably spent years building and investing in the business, building relationships with your client base and establishing your reputation. Now it’s time for you to move on and you’re looking to pass the baton to someone.

You want to make sure that things are done properly, you get a fair price and that the sale goes smoothly. This is where the business sale agreement comes in. By making sure you have a comprehensive and legally sound business sale agreement, you are paving the way for a smooth transition in ownership. If you have a business sale agreement that doesn’t suit your needs or isn’t comprehensive, you could find yourself in hot water (legally) if things turn sour.

Who provides the Business Sale Agreement?

As the seller, it is generally up to you to provide the business sale agreement. You can create it yourself using a template (but have a look at our Ebook about the risks with template contracts) or you can get your lawyer to do it for you. Getting a lawyer to draw up, or at least look over the agreement is smart investment. The purchaser will more than likely get their lawyer to look over the agreement you provide and may suggest some changes before signing it, as there is nearly always a fair amount of negotiation when selling a business.

Business sale agreements need to be tailored to the needs of each seller. However here are some of the things that you should put in the sale contract:

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    The parties – who is the seller and who is the purchaser?

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    Description of business – a clear description of the business that is being sold.

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    The purchase price – broken down into components such as the value of contracts/ client base, equipment, stock, intellectual property.

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    Payment terms – when is the purchase price payable and is it paid instalments or in full?

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    Subject to finance – whether the purchase is subject to third party finance (a loan).

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    What intellectual property is included in the sale – such as copyright, trademarks, patents etc.

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    The client contracts that are included in the sale.

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    Are you selling the businesses, or the assets that the business owns, or the actual company that runs the business (if the business is a company)?

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    Your involvement in the business after the sale– will you train the purchaser or work for the business for a set period of time post-sale?

The purchaser will probably want to include some warranty clauses and contingencies in the agreement. As seller you will most likely want to minimise the warranties that are included in the sale contract (because the less or fewer the promises that you are making the less chance you have of being found liable if one of those promises is inaccurate).

For example:

    1. What happens if the purchaser defaults on a payment?
    1. What happens if the seller has provided false or inaccurate information, particularly financial information about the business?
    1. What happens if the business is not as successful as the seller made out?
    1. What happens if the business has a liability (such as someone is suing them) and this was not disclosed to the purchaser prior to sale?

A good business sale agreement will help you to avoid disputes and will provide guidance for resolving them if they come up. Having a watertight agreement also reduces the risk that the purchaser can turn around and sue you. You have spent a lot of time and money building your business so it pays to put the same care into your final decision to sell the business!

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