8 Important Things to Look For in a Business Purchase Agreement

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When businesses become successful, it is common for them to receive offers. However, the new buyer should only buy the business through a legal contract known as a business purchase agreement.

Suppose you officially sell your business or transfer the business entity to a new owner. In that case, this guide will help you write a business purchase agreement with the terms and conditions you need for a smooth sale.

1. Purchase Price and Terms

First, you should establish what assets and liabilities you are selling and the business purchase agreement cost. Different acquisitions take place in business, so it is important to clarify precisely what you are selling.

For example, in a master purchase agreement, you can combine several purchases under one contract. This and any other type of business purchase agreement is used for purchases of $500 and over.

Most importantly, this document serves as proof of a transaction. The price can determine whether the company has been sold for a fair market value. This is demonstrated by the objective worth of the business entity rather than the subjective value of its owner or new buyer.

Ensure your policy includes a breakdown of the business transfer, the total cost of the transfer, and any asset sale that accompanies the business acquisition, for example:

  • Contracts with vendors
  • Merchandise
  • Inventory
  • Equipment

Here is an article for further detail on business assets.

2. Assets Included and Excluded From Sale

Business assets that will be transferred into the new owner’s possession should be listed and, when applicable, itemized.

Include an asset purchase agreement that states the market value for acquired assets and expresses which business assets will not be included in the business transfer.

Excluded assets clauses are helpful when there are additional assets in your business that you wish to retain possession of. These may include investments, such as:

  • Stock in trade
  • Documents
  • Real estate

It is possible, for example, to sell a business without relinquishing ownership of its property. In that case, you would transfer the company to a new owner and then enter a commercial property rent agreement if they wanted to remain operating on the premises.

Here is an article that defines excluded assets in purchase agreements.

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3. Debts Being Assumed by the Buyer

Asset purchase should proceed with any liabilities the new buyer will assume after the agreement is signed and finalized.

Debts cannot be personal, i.e., a business owner’s credit card or bank loan debt. However, debts may transfer in relation to a business’s mortgage. Other debts may be included depending on the scale of the company and the type of outstanding debts.

Suppose you wish to negotiate the acquisition of debts in a business purchase agreement. In that case, you can add an addendum to purchase and sale agreement.

Here is an article that explores personal liability in business debt.

4. Protections for the Seller

Protections for the seller in any asset sale can include a hold harmless clause. This clause prevents the buyer from holding the seller liable for any lawsuits, debts, or fees they incur after the sale.

Also known as an indemnity clause, this portion of the agreement specifies that the seller relinquishes all responsibility for the business’s transactions and legal endeavors post-sale.

5. Contingencies

Contingencies are terms and conditions that must be met before the contract is legally binding. These contingencies can include:

  • Real estate financing
  • Property inspections
  • Asset appraisal

Contingencies protect both buyers and sellers to ensure they get the most out of their business purchase agreement cost.

Here is an article that provides common contingencies in real estate purchase agreements. This may be relevant if you sell your business and the commercial property it operates on.

6. Restrictive Clauses

Restrictive clauses set guidelines and limitations for buyers’ and sellers’ actions before and after a purchase agreement.

A restrictive covenant clause, for example, can prevent someone from taking certain actions within a timeframe or without another individual’s permission. For example, this clause could prevent the buyer of a business from closing its operations or altering the business model before the transaction was complete.

Here is an article to learn more about restrictive covenant clauses.

7. Warranties

Any warranties that come with the business and its assets should be listed in the clause. The seller is also selling these warranties to the buyer. Details about these warranties, including any that may be broken by the sale, must be listed.

Here is an article that explains warranties in purchase agreements in greater detail.

8. Third-Party Brokers

Include the names of third-party brokers who were a part of the business purchase agreement. You should have their full legal names, contact information, and any compensation they are owed for their role in the purchase agreement process.

Here is an article that can help you choose a qualified business broker.

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