3 top tips for negotiating a transfer of business ownership agreement
3 tips for negotiating a transfer of business ownership agreement
1. Do your research!
Before you start to embark on a transfer of business, it is important that you conduct thorough and detailed research about that business. In business sales, these investigations are known as “due diligence”.
Due diligence enables a buyer of a business to find out the information needed to assess its risk profile in buying that business, as well as make commercial decisions about the purchase (such as the level of the purchase price that will be paid for the business). This in-depth knowledge about the business will be crucial when it comes to negotiating the transfer of business ownership agreement too, as it will enable the buyer to understand its risk profile in buying the buyer and include clauses in the agreement that minimise that risk.
Find out more about what is covered by due diligence in transfer of business transactions here.
2. Have clear objectives
A transfer of business ownership agreement covers a lot of different aspects of a transfer of business. You should set clear objectives of what you want to achieve from the transfer of business, so you can ensure that negotiations are focused. For example, those objectives might include:
Maximising value - considering how to get the best possible value for the business being transferred. This may include considering the business's assets, intellectual property, customer base, revenue streams, and potential for future growth. Understanding this will help the parties decide which assets are being transferred to the buyer, and which remain with the seller;
Mitigating risk - identifying and mitigating potential risks associated with the transfer of business, such as legal liabilities, outstanding debts, pending litigation, or unresolved disputes, so that the parties can agree ways to minimise these risks.
Business continuity - outlining a clear plan for integrating the transferred business into the buyer’s existing operations, ensuring a smooth transition and minimal disruption to the business's operations and customers. This may include the seller assisting with transition and providing transition services to the buyer.
3. Minimise your risk profile
Clauses can be included in a transfer of business ownership agreement that apportions risk and liabilities between the seller and buyer. For example, the following clauses can be tools for minimising risk:
Warranties - require the seller to provide detailed representations and warranties about the assets and business being sold. A warranty is a contractual statement of fact and, in the case of transfer of business ownership 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.
Indemnity - an indemnity can be included to minimise the buyer’s risk. 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 transfer of business ownership agreement, the indemnity could be an indemnity 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. This gives the buyer a contractual remedy against the seller.
Restrictive covenants - restrictions can be included on the seller to prevent them from competing with the business after the transfer of ownership. This could include restricting them from: (i) employing or soliciting anyone employed by the buyer; (ii) dealing with or seeking custom from the business' customers; and/or (iii) dealing with or seeking custom from the business' suppliers
How can Docue help?
Docue’s transfer of business ownership contract template is fully customisable, so you can easily adapt it to suit your circumstances and protect your interests. Lawyer-drafted guidance notes are there to help you along the contract creation process, so you have guidance on the answers to select for different circumstances. After you answer the question, you will have a fully customised transfer of business ownership agreement for your transaction.
Sign up now to use Docue’s transfer of business ownership contract template.
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