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 Australian Legal Innovation Index and recently a winner of the LexisNexis 40 Under 40 (APAC).
Introduction
A Business Sale Agreement is a crucial document if you are buying or selling a business. However, it’s important to ensure that the terms in a Business Sale Agreement are accurate before you execute the document. Minor mistakes such as an error in the purchase price or licenses to be transferred can have big consequences. In this article, we’ll explain all the key terms you should include when you create a Business Sale Agreement and what they mean.
Key points
- It’s important to ensure the terms in a Business Sale Agreement are accurate
- Key terms include confidentiality, assets, value and restrictions
- It’s a good idea to have a lawyer look over your documents before selling or purchasing a business
What are some considerations when creating a Business Sale Agreement?
1. Confidentiality
A lot of the information contained in the Business Sale Agreement will be sensitive, and the parties will most likely want it to remain confidential. This may involve information surrounding the value of the business, trade secrets or expansion plans. 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. Further, you may need to also assign Intellectual Property of the business through an Intellectual Property Agreement. If employees from the business will become employees of the purchaser, new Employment Agreements should be issued.
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. You must also consider Privacy Act compliance when transferring any private information the business might hold.
3. Value
The value of the business, and any relevant rights and assets attached to the sale, is perhaps the most important factor when you create a 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.
4. Restrictions
The parties may agree to include restraint of trade clauses within the Agreement. This includes the restriction on the seller from competing with the business for a period of time in a particular area. However, this clause has to be reasonable and cannot be indefinite or in an unlimited in scope. This ensures that the seller does not set up a similar business which will operate in direct competition with the buyer.
