3+ Sale of Business Contract – PDF
For those of you who are business owners, you should know how difficult it is if ever you decide to sell your own business. However, should you manage to successfully do so, then that can free up assets and relieve you from liability.
But before you can even sell your business, you need to find interested buyers. And once you do find those who are willing to purchase the business, you still need to come up with certain agreements in regards to the details of the transaction. And that’s why this article is going to teach you how to come up with a Sale of Business Contract.
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Remember that the entire purpose as to why this contract needs to be made is to provide all of the information in regards to how your business will be purchased by the buyer. So the document must be able to outline everything from what is being purchased to how the payment will be made. So long as the parties involved can come to an agreement, then the transaction should go as smoothly as expected.
With that in mind, here are the steps that will allow you to come up with a sale of business contract:
Come Up With an Introduction
To start, you need to come up with an introduction that recited the transaction in a few sentences. This is basically a formality where the point of the introduction is provide a background regarding the transaction that’s taking place to the reader. It’s basically a way to introduce the reader to whatever disclaimer he or she may need to know about before going through the entire contract.
If you want to introduction to carry legal effect, then you’re going to want to state this somewhere within the contract as one of the agreements.
Point Out What the Buyer Is Purchasing
Although it’s obvious that the buyer is purchasing the business being sold, you have to point out exactly what it is that the buyer is obtaining. This means that you’re going to have to provide all of the assets that will be given to the buyer once the transaction has been finalized. The reason as to why this information has to be included is because the buyer will want to make sure that he or she is acquiring everything that one expects from purchasing a business. The following are what’s supposed to be included with this type of transaction:
- Cash
- Accounts receivable
- Inventory
- Equipment
- Contracts
- Permits
- Financial statements
- Intellectual property
- Leases
Take note that there are two types of acquisition models: the entity purchase and the asset purchase. Should the both of you decide to go with an entity purchase, then the buyer will purchase a majority of your business’s stock. The buyer will then step into your position and take on all of the business’s debts and obligations. This still means that you have a share, allowing you to come up with decisions and ideas that could potentially be approved for the benefit of the business.
An asset purchase is one wherein the buyer purchased all of the assets, both tangible and intangible. Should the two of you decide to go with this agreement, then that basically means that you’re giving up the entire business to the buyer, meaning that you will have no control over what’s going to happen once the transaction is complete.
So long as you don’t miss out on any details regarding the purchase, then you shouldn’t have to worry about any problems.
Create a Non-Disclosure Agreement
Since you will be negotiating with a client prior to the transaction’s finalization, you will most likely be sharing confidential information. Should the buyer not wish to push through with the transaction, you’ll want to make sure that your business’s secrets are kept safe. So you’re going to have to come up with an agreement that has to be signed to ensure that the client does nothing with the information that could potentially be used against you.
A properly drafted NDA will state that any information stamped “confidential” will be treated as such. This means that you’re going to have to point out exactly what information must not be shared with anyone outside those who are involved in the contract. It’s also best that you include a statement that requires possible buyers to return any and all information you give them upon request.
It’s also important that you share what information isn’t confidential so that clients will know what can be discussed without needing to fear any sort of legal action. Just make sure to thoroughly explain what information is confidential or not and you won’t have to worry about your clients using it against you.
Point Out the Details Regarding Payment
If both parties have yet to agree on the price, then negotiations will need to be made. Based on the agreed upon acquisition model and the buyer’s due diligence, the buyer will usually make the first firm offer. You, the buyer, will need to analyze the offer closely, which will usually come in the form of a purchase agreement. You have to make sure that you’re getting a fair price depending on the type of purchase that the buyer wishes to push through with. Because the buyer controls the drafting of this document, it will usually have a buyer-friendly price. Analyze the offer carefully and negotiate back and forth until a fair agreement is reached. If you want to reach an agreement, consider accepting the following types of payments:
- A planned payment with various amounts due to you at different times. Usually, the buyer will provide you with some of the payment upon closing the deal, as well as other types of payments that have been agreed upon within a promissory note that’s to be given by the client.
- Payment that’s allocated between a various amounts of assets. This can include stocks from other companies, cash, bonds, etc.
- A lump-sum payment, which might be difficult if the purchase price is large. This is unlikely as there are almost no buyers who have huge sums of cash on hand.
Discuss the Details Regarding the Transfer of Ownership
Before the purchase can be finalized, it’s important to point out the details regarding how the ownership of the stocks or assets of the business will be transferred to the buyer. You have to be clear on what it is that the the buyer will receive upon purchase, as well as what documents he or she will be provided with to show proof of ownership. This is to ensure the buyer that he or she is now the legal owner of whatever was purchased.
It’s also important that you also include statements regarding the responsibilities that will be transferred. Once ownership has been transferred from the seller to the buyer, there has to be a statement which says that the seller is no longer responsible for whatever actions the buyer does with what was purchased. This is to ensure that the seller is safe from any legal action or lawsuits should the buyer do anything that warrants them with the use of what was purchased. Think of it as a layer of protection for the seller.
Include a Non-Compete Agreement
The buyer who will be purchasing the business will want to make sure that you don’t come up with another similar business that could potentially threaten the one that he or she has just recently bought. So to prevent that from happening, he or she may require you to agree to a covenant to not compete. It’s basically a promise that you will not set up a business that competes with the one you just sold. Without this type of promise, no buyer is likely to purchase your business.
When coming up with this section of the contract, the agreement needs to point out the duration in which the seller cannot compete with the buyer with a similar business. For example, you can include a statement which says that the buyer will not be able to stop you from opening a business in another country or from opening a business 20 years past the agreement.
Another statement that the buyer will want to have included is one that says the seller promises not to solicit any of your old customers for a certain period of time.
Next is a statement which tells the buyer that that the seller promises not to entice employees into leaving the business you just sold.
And lastly, the buyer will want to come up with an agreement which states that the seller will not discuss or disseminate any confidential information about the business that has just been sold.
If you would like to learn how to create other types of contracts, then all you have to do is to go through our site. It has many different articles, all of which contains the information you may very well need. Just be sure that you are able to read these articles thoroughly so that you can make the most out of what they have to offer.
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