Avoid uncertainty, legal risks, lack of clarity and missed opportunities by making sure you have the right business sale agreement in place.
If you are selling your business, it's essential to have a well-drafted and legally binding sale agreement. The agreement outlines the terms and conditions of the sale, including the purchase price, payment terms, and any warranties and representations.
While you may be tempted to draft the agreement yourself, it's highly recommended to seek advice from an experienced solicitor, who understands business transactions.
A commercial solicitor can provide invaluable guidance and support throughout the entire sale process, ensuring that your interests are protected, and the agreement is legally sound.
Creating a business sale agreement template
Seller and buyer details
Details for both the seller and buyer; include the business name, addresses, contact information and status, such as whether they are acting as an individual or as a representative of a company or other organisation.
A typical business sales agreement contains details regarding the method of ownership transfer, which can be either through the sale of assets, shares, or other means.
Additionally, it outlines the deadline for the transfer to take place (i.e. the closing date), and other relevant clauses such as those about confidentiality, cancellation, and more.
The names and addresses of the buyer and seller, along with any other relevant parties, such as guarantors or lenders.
Full Purchase price
Both parties agree upon the purchase price for the business, along with any adjustments or earn-outs.
A detailed list of the assets being sold, such as equipment, inventory, and intellectual property. You may also want to detail any excluded assets.
Any known or contingent liabilities being assumed by the buyer, such as outstanding debts or pending legal claims.
Payment terms & payment options
The paying party should be clear about the terms of payment, including the amount and timing of any deposits, instalments, or final payment.
Representations and warranties regarding the business, including its financial state, legal compliance, and intellectual property ownership.
The scope and timing of the buyer's due diligence, along with any restrictions on disclosure of confidential information.
The extent to which the seller will indemnify the buyer against any losses arising from breach of representations or warranties.
Any obligations of the parties following the closing, such as transfer of ownership, employee retention, or non-compete agreements.
The process for dealing with any disputes when a party fails to fulfil their obligations. Such disagreements may be resolved through mediation or arbitration and this clause sets out the process e.g. both parties acknowledge to seek mediation before seeking legal resolution.
In general, your business sale agreement should supersede any oral or written agreements in place before the agreement date.
Who creates a business sale agreement?
Here are some ways a solicitor can help with your sale agreement:
- Drafting the agreement: A solicitor can draft a sale agreement that is tailored to your specific business and the terms of the sale.
- Negotiating the terms: If you're selling to a buyer who has their own solicitor, your solicitor can negotiate the terms of the sale on your behalf. They can help you achieve a fair price, payment terms, and warranties and representations.
- Conducting due diligence: A solicitor can conduct due diligence on the buyer to ensure they have the funds and resources to complete the sale. They can also review any legal or financial documents provided by the buyer to ensure they are accurate and complete.
- Managing the transaction: Your solicitor can manage the entire sale transaction, including liaising with the buyer's solicitor, ensuring that all necessary documents are signed and exchanged, and overseeing the payment of the purchase price.
A solicitor can provide expert legal advice and support throughout the sale process, helping you achieve a smooth and successful sale. By working with a solicitor, you can be confident that your sale agreement is legally binding and protects your interests.
What is the agreement on the sale of a business?
In the UK, an agreement on the sale of a business is a legally binding business contract that outlines the terms and conditions of the sale of a business.
It is similar to a Purchase of Business Agreement (POBA).
The document is important for both the buyer and the seller as it sets out the details of the sale, including the purchase price, payment terms, and any conditions precedent. The agreement may also include provisions related to the transfer of ownership of assets, intellectual property, and any employees associated with the business.
Business sale agreement vs business purchase agreement
A business sale agreement and a business purchase agreement are not the same thing, although they are closely related.
A business sale agreement is a legal document that sets out the terms and conditions of the sale of a business by its owner(s) to a buyer. It is a contract between the seller and the buyer that outlines the purchase price, the assets being sold, any liabilities that will be assumed by the buyer, and the terms of payment.
On the other hand, a business purchase agreement is a legal document that sets out the terms and conditions of the purchase of a business by a buyer from a seller.
It is a contract between the buyer and the seller that outlines the purchase price, the assets being sold, any liabilities that will be assumed by the buyer, and the terms of payment.
So, while both documents cover the same transaction, the difference lies in the perspective of the parties involved. The business sale agreement is from the seller's perspective, and the business purchase agreement is from the buyer's perspective.
Who needs a Sale of Business Agreement?
Any individual or company buying or selling a business needs a business sale agreement. This agreement is essential in protecting the rights of both buyer and seller ensuring that the terms of the sale are clear and legally binding.
What are business assets and shares?
When selling a business, the seller agrees to either sell the assets or the shares of the company. Asset sales involve the transfer of the business assets, such as property, equipment, and inventory. Share sales, on the other hand, involve the transfer of ownership of the business entity itself, including all assets and liabilities.
How can the purchase of a business be paid off?
The purchase price of a business can be paid in several ways, including:
- Lump sum payment: The buyer pays the entire purchase price upfront.
- Instalment payments: The purchase price is paid over a set period, with regular instalment payments.
- Deferred payments: The buyer pays a deposit upfront and the remaining balance over a set period, with interest.
- Earn-out: The purchase price is based on the business's future performance, with the buyer paying a percentage of profits or revenue.
Documents Related to a Sale or Purchase of Business Agreement
Several documents may be required when completing a POBA, including:
- Bill of sale: A document that confirms the transfer of ownership of the business assets.
- Share purchase agreement: A document that outlines the terms and conditions of a share sale.
- Assignment and assumption agreement: A document that assigns and transfers any contracts or leases related to the business.
- Disclosure letter: A document that discloses any known issues or liabilities related to the business.
What agreements are involved during the business sale process?
In addition to the Business Sale Agreement or POBA, several other agreements may be involved in the business sale process, including:
- Non-disclosure agreement: A document that prohibits the buyer from disclosing any confidential information about the business.
- Letter of intent: A document that outlines the basic terms of the sale, including the purchase price and payment terms.
- Due diligence checklist: A list of documents and information that the buyer will review as part of the due diligence process.
- Employment agreements: If the buyer intends to retain the employees of the business, new employment agreements may need to be drafted.