How to Create a Business Sale Agreement
Four considerations for you to incorporate into an agreement that will ensure a smooth sale.
You need to ensure that the terms in a Business Sale Agreement are accurate before you execute the document. Imagine if a zero is missing at the end of the sale price, or you transferred licences that you didn’t intend to! It would be a tragedy! Well, depending on which side of the agreement you are sitting on.
What are some considerations when creating a Business Sale Agreement?
A lot of the information contained in the Business Sale Agreement will be sensitive, and the parties would want to remain confidential. It is important, therefore, to include a comprehensive confidentiality clause to ensure that none of this information leaks out.
2. Rights and assets being transferred
It is crucial (emphasis added) to determine which rights and assets are being transferred. There are multiple combinations of considerations that both parties must consider. If the seller is a company or a trust, it may be selling assets other than the business itself. The purchaser has to clearly state if it is ready to accept the transfer of all the seller’s liabilities or not, and if so, which liabilities and how should they be valued. The parties have to also decide who bears the stamp duty liabilities from the sale. Privacy Act compliance must also be considered when transferring any private information the business might hold.
The value of the business, and any relevant rights and assets attached to the sale, is perhaps the most important part of the Business Sale Agreement. The agreement should include a goodwill valuation using an agreed upon method, an extensive and exhaustive list of the assets, plant and equipment and their value, the value of the premises, and/or any stock of the business.
Encumbrances are usually not included in the value of the business. That means that the seller must settle any mortgages, charges, and/or encumbrances over any of the business’s assets, unless the purchaser agrees to take them on.
The parties may agree to include restraint of trade clauses. This includes the restriction on the seller from competing with the business for a period of time in an area, which have to be reasonable. This ensures that the seller does not set up a similar business and woes her/his customers away.
If you are ready to sell or buy a business, with LawPath you can now create a Business Sale Agreement in under 15 minutes.
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Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.