A business purchase agreement is any type of legal contract governing the transfer of a business or its assets from one owner to another. A business purchase agreement may be structured in a variety of ways, depending on what the parties are trying to accomplish:
Asset Purchase Agreements: some or all of the assets are sold but the ownership of the business as a legal entity doesn’t change
Stock Purchase Agreements: the stock in a corporation is sold to a new owner, often making the new owner or the sole or majority owner
Membership Interest Transfer Agreements: the membership interests in an LLC are sold or transferred, often used when a business partner or member of the LLC leaves the business
What does the purchase agreement usually cover?
While every business purchase agreement is different (and some are more complex than others, the agreement will typically cover the following key areas:
Who are the buyers and sellers? Are they individuals or other business entities?
What, exactly, is being sold? Is it the assets of the business? The stock or membership interests? Are there any assets being retained by the sellers? Assets might include both physical items (tangible property used in the business) as well as intangible assets (i.e., intellectual property, accounts receivable, assumed contracts, goodwill, etc.)
What, if any, liabilities will the buyers assume or take over? In some deals, the buyer only wants the assets of the business, and in others, the buyer agrees to take on the business’s current liabilities. If the buyer is assuming current liabilities, what are they? Does the business have outstanding debts, unfulfilled service obligations, pending or actual claims against the business, or potential employment or contractual liabilities?
What is the purchase price? How will it be paid (i.e., in cash or over time via a promissory note? If a loan is involved, have the buyers obtained bank financing, or will the seller be financing the deal)? If seller financing is involved, there are a number of ways to protect the seller to minimize the risk that the buyer defaults on the loan.
The sellers usually make fairly extensive “representations and warranties” to the buyers. These are statements about various aspects of the business and its condition that the buyer can rely on in deciding to enter into the purchase agreement. If these statements are not true, then the buyers may have fraud claims against the sellers. For example, the sellers will often represent and warrant that they have provided accurate financial information to the buyers.
Is there anything that needs to happen before the deal closes? For example, the sellers often agree to keep the business running in the interim. The buyers may want to enter into employment agreements with key employees. Or perhaps the buyers need to finalize bank financing. Assuming these “closing contingencies” are satisfied, when will the deal “close” or be finalized?
Will the sellers stay on for a period of time as employees or consultants or be available in some way to ease the transition?
Will the sellers agree not to start a competing business or otherwise interfere with the operations of the business they just sold?
Even for our business clients, business purchase agreements can be complex transactions. And they are often the biggest deal the buyers or sellers will ever be involved in. Don’t leave the fate of your business to a poorly drafted, generic online form agreement. These deals must be customized to your particular business and the unique terms of your particular transaction. Whether you are the buyer or the seller, our business attorneys can help make sure your best interests are protected.
The information contained on this website is not legal advice or legal opinion and should not be relied upon. Furthermore, nothing contained in this website is intended to create or establish, and does not constitute, an attorney-client relationship.