The sale of a business goes beyond agreeing to the terms of the sale and often encompasses several steps that happen subsequent to the basic sale terms being agreed to by the seller and the buyer. The steps that occur after the basic terms of the agreement have been reached fall into two major categories; conditions precedent and the completion checklist.
Conditions precedent are all of the steps and actions that must be taken prior to the sale of the business being finalized or considered complete. Once these items are completed the sale can be confirmed. Conditions precedent are determined by the seller and the buyer. Once these conditions are agreed upon, they must be completed or either party may have the option to opt out of completing the sale. Some common conditions precedent includes;
- Reviewing the terms of any lease of the property the business operates out of. The lease may have to be transferred or the lessor may require the new business owner to negotiate a new lease. Either way, the lease must be taken out of the seller’s name and put into the buyer’s name.
- Existing contracts with vendors or franchises or purchasers will need to be reviewed and the parties will have to agree to continue to work together within the existing terms of the various contracts or be willing to enter into new contractual agreements.
- Any required regulatory approval for continuing the business may need to be reviewed to determine if changes need to be made to the paperwork/terms of the current approval. For example, if the regulatory approval was in place based upon the previous owner of the business, the new owner might have to reapply in their own name as the new owner of the business.
A completion checklist contains all of the actions and/or steps that must be taken prior to completion day, on completion day, and subsequent to completion day. Each party may have their own checklist for each of the stages and work both independently and cooperatively to make sure that all items are completed.
Pre-Completions Items: In this state of completion the parties and their legal representatives are busy drafting and finalizing all of the documents that will allow the sale to transfer the business to a new owner. Some of these documents include the deeds and titles which will assign assets and property to the new owner. These requirements might also include lists pertaining to an inventory of goods that will remain with the new owner and/or a description of services provided by the business and to whom the services are provided and list of the employees that may or may not be transferring to the new employer.
Pre-Completion Responsibilities: It is possible that there will also be some pre-completion responsibilities that the seller and the new owner will work on together. These can include;
- Training in the form of having both the seller and the buyer on the premises during the workday to handle the daily operations
- Meeting with the employees who will continue working for the new owner and introducing them to the team of people who will be managing under the new ownership
- Eventual reduction of the involvement of the seller in the day to day operations of the business
- Reaching a point at which a full handover of the operations can occur
On completion day both parties will be present to attest to the fact that all of the preconditions of the sale have been met and the pre-completion items have been completed. With all of these duties executed, the final sale and transfer of the business can proceed. The completion of the sale and the final transfer of the business will usually proceed with the following being turned over to the new owner.
- Business Records
- Employee Records
- Assignments of the various assets being transferred via the sale; including the assignment of ongoing contracts or property such as a lease or vehicle ownership
- Log-in details for accounts that the new owner will continue accessing and using including social media accounts, websites and bank accounts
- Payment of the balance of the purchase price
Once all of these steps have been taken it is very likely that a smooth transfer of the ownership and the operations will occur. This will allow for the seller to walk away from the sale having secured a legal transfer of the business to the new owner, and allow for the new owner to take over operations in a smooth and efficient manner. Such a seamless transfer will allow for the business to continue to function at its maximum capacity.
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 770 778.