Business sale agreements: a guide for buyers and sellers

What is a business sale agreement?

A business sale agreement is a legally binding contract that outlines the terms and conditions for the sale and transfer of a business (and its assets) from a seller to a buyer. It is a crucial document in the process of buying or selling a business, as it establishes the rights, obligations and responsibilities of both parties involved in the transaction.

A well-drafted business sale agreement can be crucial for protecting the interests of both the buyer and the seller, ensuring a smooth transaction, and minimising the potential for future disputes.

When would you need to use a business sale contract?

A business sale agreement should be used whenever an asset sale is taking place - an asset sale is where a business’s assets are being sold, but not the company itself (i.e. its shares). An asset sale can arise in a number of circumstances, including:

1. Partial business acquisition - if a buyer is interested in acquiring only certain assets or divisions of a seller's business, such as equipment, intellectual property, customer lists, contracts, or inventory, an asset sale would be used over a share sale;

2. Startups and new ventures - when starting a new venture or expanding into a new market, a business might acquire specific assets from another company to accelerate its growth;

3. Asset sale to reduce debt - to pay off debts or liabilities, a company may choose to sell certain assets, and a business sale agreement could be used to document that asset sale;

4. Mergers and acquisitions - in some merger and acquisition transactions, the buyer may prefer to acquire specific assets or divisions of the target company instead of taking on all its liabilities (via a share sale); or

5. Divestitures - in cases where a company decides to divest non-core assets, a business sale agreement can be used to sell those assets to another business.

A business sale agreement should not be used for a share sale, and a share purchase agreement should be used instead. For more information about the differences between asset sales and share sales, read this guide.

Key provisions of a business sale agreement

The exact content of a business sale agreement will vary depending on the particular business being sold and the circumstances of that transaction. However, a typical business sale agreement will include:

1. Parties - a business sale agreement will clearly identify the parties to the agreement, i.e., the seller and the buyer, and whether they are individuals or corporate entities.

2. Description of business - a comprehensive description of the business being sold should be included in the business sale agreement, so there is no dispute over the business being sold.

3. Assets being transferred - clearly define and specify the assets and liabilities included in the sale, as well as any excluded assets or liabilities. Assets could include, for example, contracts, employees, equipment, machinery, intellectual property rights, social media accounts, vehicles, book debts and stock.

4. Purchase price - the business sale agreement should clearly state the agreed purchase price for the business, so there can be no dispute over this in the future;

5. Payment terms - a clause that sets out how the purchase price will be paid, such as through a lump-sum payment, instalments, or using a combination of methods.

6. Completion mechanics - details of when completion of the business sale will take place, as well as both parties’ obligations on completion of the sale;

7. Warranties - a warranty is a contractual statement of fact and, in the case of business sale agreements, often takes the form of assurances from the seller as to the condition of the business or assets being purchased. If the warranties are untrue, a claim can be brought by the buyer for damages. It is pro-buyer to include as many warranties as possible.

8. Indemnity - an indemnity is a contractual agreement to make a payment to a party when it suffers a loss, provided that the event in the indemnity is triggered. In the case of a business sale agreement, an indemnity could be included that would be triggered by the buyer suffering a loss post-completion, as a result of an act or omission of the seller in relation to the business that occurred pre-completion. Including an indemnity would be pro-buyer.

9. Restrictions on the seller - clauses that prevent the seller from competing with the business or soliciting its employees, customers, or suppliers for a specified period after the sale;

10. Confidentiality - ensuring the confidentiality of sensitive business information and trade secrets shared during the negotiation and due diligence process;

11. Dispute resolution - outlining the process for resolving disputes that may arise between the parties.

To make sure you include all the necessary clauses in your business sale contract, read this guide.

Buyer vs seller - what difference does it make to a business sale agreement?

The key concerns of a party in relation to a business sale agreement will vary depending on whether the party is selling its business (the seller) or acquiring that business (the buyer). For example, a seller will be keen to maximise the purchase price for the business, whilst the buyer will want to ensure value for money.

Use these guides to help you understand business sale agreements further from a buyer vs seller perspective:

• Buyer guide; or

• Seller guide.

How to negotiate a business sale agreement

As the buyer’s and seller’s interests are different (see section above), negotiating a business sale agreement can be complex. It is important to try and achieve a balanced agreement that protects both parties and avoids future disputes. For tips on negotiating a business sale agreement, read this guide.

What other documents do I need for a sale of business?

1. Heads of term - before entering into a business sale agreement, the parties may want to agree a set of heads of term that outline the key commercial aspects of the proposed sale. Agreeing these matters up front in a heads of term document can help to speed up the negotiation process when it then comes to agreeing on the business sale agreement;

2. Board minutes - both the seller and the buyer (where they are corporate entities) should ensure that they have all necessary company approvals in place for the sale/purchase to take place. These approvals are usually documented via board minutes - Docue’s board minute template includes sample wording that can be used to document the approval of an asset sale/acquisition.

How can Docue help? Use Docue’s business sale agreement template!

Docue’s business sale agreement template has been drafted by lawyers so that you can create a top-quality business sale agreement in minutes. Docue’s service includes model clauses designed by business lawyers to help you draft the contract yourself and tailor it to your needs. Signatures can be collected electronically, and all contracts you make are saved in your company's own contract account so that you have a platform that supports your contracting process from start to finish.

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