At one time or another, a business owner may feel they want to sell their business. They may have several reasons why they are selling, like lack of profitability, relocation, or when they want to venture into a different field. Business sale agreements are important during the selling/purchase process. They outline the terms of purchase and provide every detail that has been agreed upon. Without a transfer of business ownership agreement, the buyer or seller can suffer losses if legal issues arise later.
- 1 Business Purchase Agreement Templates
- 2 What is a transfer of business ownership agreement?
- 3 Business Sale Agreements
- 4 Importance of business sale agreements
- 5 What should a business purchase agreement look like?
- 6 How do I write a purchase offer for a business?
- 7 Business Sale Contracts
- 8 How business sale agreements work?
- 9 Situations that can warrant a transfer of business ownership agreement
- 10 Business Takeover Agreements
- 11 What next after signing the transfer of business ownership agreement?
Business Purchase Agreement Templates
What is a transfer of business ownership agreement?
A transfer of business ownership agreement is also known as a:
- Business sale agreements
- Business sale contract
- Business takeover agreement
It is a legal document used when transferring business ownership. The contract is signed by the buyer and seller. It acts as a final document that closes the purchase/sale deal. Every detail touching on the business purchase/sale is provided in the agreement. The business sale contract applies to any type of business such as retail, factories, hotels, service companies, fleet companies, and any more.
Business Sale Agreements
Importance of business sale agreements
If you are planning to buy a business, there are several legal steps that you must observe. A business involves a lot of money and you cannot hand over your business or pay a purchase fee to a business owner without documentation. The business takeover agreement has many benefits.
It contains the terms
The business takeover agreement contains detailed terms and conditions of purchase/sale. It provides details like:
- Who are the parties involved
- How the transaction will be done
- Where the business is located
- Why it is under sale
- Quantities involved
- Money involved
- Dates of transactions and agreements
- Condition of the business at the time of purchase
It eliminates disagreements
Disagreements can arise if there are miscommunication issues. If they are not mitigated, such disagreements can lead to a strenuous relationship between the client and the selling entity. The agreement should contain every important detail to avoid creating gaps in some of the clauses.
It is a legal document
You must provide details about what has been agreed by both parties. If issues of disagreement arise later, the document can be used in court. Without it, it becomes impossible for the court to prove whether there was any form of agreement.
It protects the interests of both parties
The business takeover agreement protects the interests of both parties. The seller will be sure they will receive their money and the buyer will be sure they will get all assets, stock, and necessary information.
What should a business purchase agreement look like?
The buyer and seller must agree on the terms of sale and agree to follow the legal requirements. The seller first receives a letter of intent where the buyer must agree to be bound by the seller’s terms and conditions.
Another arrangement can be where both the buyer and seller get involved in the process of deciding the price. They evaluate the business and the buyer quotes their buying price. Regardless of the process followed, all business sale agreements should include the following information.
The business sale agreements provide details of both the buyer and seller. The business can be a sole proprietorship, partnership, or a big company owned by multiple shareholders.
Sole proprietorships: If the business is owned by one person, the owner should provide their personal details like
- Telephone contacts
- Email address
- Physical address
Partnerships: If the business is owned by two people, both should provide their details to be captured in the transfer of business ownership agreement.
Bigger companies: These are companies such as corporations, LLCs, cooperatives, etc. Such companies should appoint their representatives to negotiate on behalf of everyone else.
The agreement is the statement that confirms that the seller has agreed to sell and the buyer has agreed to buy. This section is usually short but it carries the greatest weight in the transfer of business ownership agreement. It gives the buyer full ownership rights. It paves the way for the transfer of the rights and the assets owned.
Consideration in business sale agreements means what is bargained for. It is the price paid in exchange for the agreements made. In this case, the buyer pays the seller the purchase money. On the other hand, the buyer gets the business. This is an important clause that must be included in business sale agreements.
The seller might want to sell their existing business to go and start another one that sells similar products within the same territory. The covenant restricts the seller from such actions. It can prohibit them from starting such a company within the geographic region for a certain number of years.
If the seller wants to move to another country and start the same kind of business, the covenant may not be applicable. It also prohibits the seller from soliciting the current employees, suppliers, or customers to avoid unfair competition.
Warranties define the condition of the business at the time of purchase. If any of the information provided proves to be untrue, the buyer has all rights to revoke the agreement or take legal action. It covers issues such as:
- Company accounts
- Its assets
- Intellectual rights
Some business sale agreements can be agreed upon and signed on the same day. However, agreements involving bigger businesses take time. The buyer first verifies the condition of the business before signing the deal. These are what are called precedent conditions. It confirms the condition the business was in at the time of purchase. The buyer confirms different information details as follows:
- They conform with the tax authority to ensure there are outstanding clearances.
- They confirm with the merger approval authority to ensure there are no legal pending legal issues.
- They confirm consent from other shareholders or key persons in the business.
Completion date means the date when the full transfer must be completed. This is the time when the buyer takes full ownership of the business. When the transfer is complete, both parties sign documents that state that the buyer has received the full transfer of the company and the deal is closed.
The indemnity is written to protect the buyer and seller against legal disputes. If such a dispute arises, the indemnity provides details about who will be responsible for the fees arising, like court fees, attorney fees, and many more.
Both parties must sign the transfer of business ownership agreement and write the dates when the signing was made.
How do I write a purchase offer for a business?
Follow these steps when writing business sale agreements.
Step one – Information about the business and the involved parties
A business sale contract should provide details about the buyer and seller. Write the following details:
- Name of the seller
- Telephone contact
- Emails address
- Postal address
- Physical address
- Full legal names of the buyer
- Telephone contact
- Emails address
- Physical address
- Postal address
- Business name
- Registration type (sole proprietorship, partnership, corporation, LLP, LLC, LC, etc.)
- Business location
- Business telephone number
- Business email address
- Business postal address
- Nature of business (the specific operations of the business)
Step two: Assets
The business takeover agreement must include details of the assets transferable. Provide specific details of each asset. For example:
- Land (specific parcel number, physical location, registered owner/s, measurements)
- Buildings (building name, located on parcel number, registered under the name, size)
- Financial assets
- Lists of customers
- Business name
- Accounts receivable
Step three: liabilities
Once the buyer signs the transfer of business ownership agreement, they should assume the business liabilities. However, these details must be captured in the agreement. These are liabilities such as:
- Contractual liabilities
- Employee liabilities
The liabilities can be listed in a separate sheet and attached to the agreement. If there are certain excluded liabilities, they should be indicated.
Step four: Price
The transfer of business ownership agreement must show the price the purchaser is buying the business. The seller can prepare a list of all items being paid for and then indicate the total. The two parties may agree for the buyer to pay a deposit and then the balance within a specific date. Provide details about how the payment will be made. It can be made through any of the following:
- Bank wire transfer
- Card payment
The purchase price should include the dates by which the payment should be made. If there are any penalties for late payment or transfer charges, they should be indicated at this point.
Step five: Terms of purchase
The terms give details about the conditions of purchase. If one of the parties fails to meet the conditions, the purchase cannot be completed. The key terms to include can be as follows:
- Conditions precedent
- Disputes and dispute resolutions
- Restrictions to the seller
- Buyer/seller representatives
- Any other important provisions
Step six: Signatures
The two parties and their witnesses/representatives should sign the transfer of business ownership agreement. They should indicate the date when the document was signed. Once it is signed, it becomes a legal document.
Business Sale Contracts
How business sale agreements work?
When business owners wish to sell part of their entire business, they usually advertise to attract a buyer. When they are selling part of the business, it could mean they are selling any of the following:
Some business owners may indicate the sale price but most of them do not. They wait until they get a potential buyer to disclose the rest of the key information. Once a buyer is interested, they notify the business owner through a letter known as an intent to buy letter. The letter provides the following details.
- Buyer exclusivity
- Buyer and seller restrictions during the purchase process
- Value the buyer is willing to exchange
- Detailed negotiation timelines and deal structure
- Guarantee and warranty scope
- Deal termination
- Agreement modification
- Other important details
After the seller receives the letter, it becomes the starting point for the selling process.
They agree on several things, such as:
The letter of intent is what guides the two parties into the negotiation process, drawing of the purchase agreement, and closing of the deal.
Situations that can warrant a transfer of business ownership agreement
A transfer of business ownership agreement can be used in any of the following situations.
- When selling a company name
- When selling business machinery or furniture
- When selling a company’s parcel of land or office
- When the business wants to sell its list of customers
The agreement protects the buyer and is a promise that the business is in good condition. If the business is not performing well, the seller may decide to sell it on as is where is basis.
Business Takeover Agreements
What next after signing the transfer of business ownership agreement?
After the purchaser signs the transfer of business ownership agreement, other steps must follow for the deal to be called complete. Several deliverables must follow.
- Payments. The buyer must make all the payments as per the agreement. They must make the first deposit within the dates agreed and do the installments within the due date of each. If they fail to make the payments, the agreement can be revoked before a lawyer in court. Once it is revoked, the seller must refund the monies already received minus the penalties and legal fees.
- Items delivery. The seller must make sure every item involved in the sale is delivered to the buyer. If there are real estate properties involved, the seller must effect the transfers within the agreed time. All machinery located elsewhere must be moved to the agreed place. The agreement might have stated it is the buyer who will move them. However, the seller must cooperate to help with identifying the equipment.
- Signing of documents. Other documents need to be signed once every agreement in the business takeover agreement has been fulfilled. On the part of the seller, they will sign documents that show they have received their full payment. On the other hand, the buyer will sign documents that show all the assets have been transferred into their name. This is the point where the entire selling process ends. The parties may decide to visit a lawyer to close the selling/purchase deal.