The sale or purchase of a business is a big decision that entails a myriad of considerations before even entering into any type of sales agreement. Therefore, first and foremost, it is very important that even prior to getting to the drafting, editing, and finalization of a sales agreement, both parties perform their due diligence by means of carefully vetting and/or valuing the business from their perspective as either the seller or the buyer. Once this investigation is complete, the seller has a full understanding of the value of his business and the price they are seeking, and the buyer has their own calculation as to what the business is worth and the terms they are willing to agree to, the negotiations leading to a business sales agreement can begin.
Key Terms for a Business Sales Agreement
There are key terms that both the seller and the buyer must be aware of and fully understand. These key terms include;
- The full names of all of the parties involved in the sale and the purchase
- A listing of the assets being sold and their corresponding values
- A listing of any debts the company currently holds and who will be responsible for settling or continuing to make payments on the outstanding debts
- The identification of any equipment and/or property that will be transferred to the buyer
- The review of any lease agreements that will be retained for the business location to remain stable
- The financial terms of the contract including the sale price and/or any graduated payments that will be made over time
- The protection of the goodwill of the business during the term of the negotiations and through the final sale of the agreement
- Any clauses pertaining to non-competition within the local area
- Requirements regarding the retention of employees
- Warranties and Indemnities and their corresponding durations
- Current contracts with vendors and/or buyers and their transfer with the business
- Special conditions of the sale
- Precedents that must occur before the sale is finalized and the corresponding details and timetables for completion
- Financial approval timelines and deadlines for loans to support the purchase
- Any deposits and the time frame at which installments or the entirety will be due and owing
- The duration under which the contract is expected to be completed and the sale finalized with all valid signatures collected
Parties Full Understanding of the Terms of the Agreement
While many of these necessary terms seem self-explanatory, it is important that both sides come to a meeting of the minds regarding the details that each of these terms will contain. In the event that you read the description and content of a term and its requirements, and you do not fully understand what is expected of you as either the seller or the buyer, it is imperative that you request clarification from your Solicitor immediately. In the event that there is a difference of opinion regarding any term or any detail of a term, the parties will need to negotiate the meaning of the requirement and come to an agreement as to the definition of the term and its expectations.
Settling Unexpected Disputes
In addition, it is important that your agreement contain an avenue to settle any issues that arise during or after the signing of the contract for sale. For example, if some of the purchased equipment is not in good working order and the buyer does not discover this until after the sale is finalized, what should they do? The terms of the agreement should contain a clause to handle such issues. This clause is often a requirement for the parties to agree to mediate or arbitrate any terms and/or conditions that are not met, or are not as anticipated, in the business sales agreement.
Lastly, many agreements will contain confidentiality clauses. If the parties want the terms of the sale to remain only their knowledge, such language can be added to the business sales agreement stating that the parties must keep the terms of the sales contract confidential. The clause might also indicate a penalty that will be levied against any party breaking the confidentiality agreement.
Selling or buying a business is an exciting adventure that can change the course of the lives of many people, including the businesses employees. This process can go smoothly and with great success if the parties involved have a solid understanding of the business sales agreement they are entering into and the advice of both business and legal professionals.
In the event that you find yourself in need of assistance, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 780 770.