When a buyer and seller disagree over the terms or outcomes of a business sale transaction, a dispute can arise. In extreme cases, a business sale dispute can prevent the transaction from taking place, causing financial and other losses.
But, the good news is that it’s common for these disputes to be resolved out of court, such as through amicable communication and negotiation between parties.
If you’re involved in a business sale dispute, you’ll want to know how to resolve it quickly so you can protect your assets and avoid litigation.
In the rest of this article we explore:
- Common business sale disputes
- How you can prevent them
- How to deal with them
- How a lawyer can help you throughout the dispute process
What Are Common Business Sale Disputes?
Although some disputes arising during or after the sale of a business can be resolved, others involve negotiations between parties so that they can reach an agreement.
Some of the most common types of business sale disputes are:
- Nondisclosure by one party of financial or other information.
- Misrepresentation of the business finances.
- Valuation disagreements.
- Nonpayment from the buyer.
- Vague or confusing terms in the business sale document.
- Non-compete violations The seller might start a business in competition with the one they’ve sold or solicit the business’s clients, creating problems for the buyer.
How are Business Sale Disputes Prevented?
Business sale disputes can be prevented with due diligence. For the seller, this includes investigating the buyer’s ability to purchase the business. Sellers also need to check that payment is made promptly and set down legal clauses that the buyer can’t decide after the transaction that the business isn’t meeting their expectations.
Due Diligence
This is basically an investigation of the business and includes:
- A financial investigation of the business value so there’s no confusion or misinterpretation
- Assessing any financial or legal risks that the business might encounter in the future
- Confirming that the business is operating in a legally sound way to prevent legal consequences
Drafting a Legal, Clear Contract
An important way to prevent business sale disputes is by drafting a legal and clear business sale agreement. This document needs to include key terms and clauses to protect both parties, such as:
Transparency
The agreement must specify all sale terms in clear detail, such as purchase price and payment schedules. The agreement should be drafted in language both parties can understand so that it can’t be misinterpreted.
Representations and warranties
Both parties need to state their representations and warranties so that the sale can go ahead in good faith. For example, the seller needs to assure the buyer that the business is in good financial state, while the buyer needs to confirm that they are financially able to complete the purchase.
Dispute resolution
The agreement should include a dispute-resolution clause so that parties can resolve any issues that arise, either during or after the business sale.
It’s important for this clause to clearly specify the method for resolving disputes, such as by including the words “solely” or “exclusively.” This prevents confusion over whether the resolution process is mandatory for parties.
Non-compete and non-solicitation
The seller should be prevented from starting a similar business or soliciting the business’s clients for an amount of time defined in the document. This is to ensure the buyer’s investment isn’t marred.
If you’re worried that your business sale agreement isn’t fair or legally sound, you can have it reviewed by posting a project for free on ContractsCounsel, an online legal network connecting clients with vetted, experienced lawyers. The skilled lawyers on the platform can also draft a business sale agreement for you so that it’s transparent, fair to both parties, and legally enforceable.
How Can You Deal with a Business Sale Dispute?
There are many ways in which to resolve a business sale dispute. These include the following:
Mediation
This is when a third party facilitator will hear both parties’ negotiations and discussions. They don’t get involved but encourage the parties to reach an agreement that works for both of them. Mediation is highly recommended for situations where the business sale dispute involves misunderstandings or minor issues.
Arbitration
This is when a neutral arbitrator, or panel of arbitrators, hears both parties’ sides and issues a legally-binding resolution. It can provide assistance in cases where parties can’t negotiate on their own.
Although arbitration is a bit more formal than mediation, it keeps the case out of court and away from the public eye, which could be a requirement for the parties.
Litigation
In some cases, your only way to resolve the issue is to pursue litigation, such as if you’re dealing with a seller’s hidden debts or misrepresentation. It’s essential to seek legal guidance so that a skilled lawyer can help you figure out your best options.
When Should You Hire a Lawyer for a Business Sale Dispute?
It’s a misconception to think that you should only consult with a lawyer if your case needs to go to court. By hiring a lawyer early on in the dispute, they can benefit your case in various ways. These include the following:
- Lawyers ensure that the parties’ claims are valid.
- They remind both parties of the risks, such as high expenses, of going to court.
- They can negotiate with the other party on your behalf to reach a settlement.
- They’ll review and draft important business sale documents so everything is legal and nothing crucial is left out.
- If your dispute does end up in court, your lawyer will represent you.
- Lawyers will remind you of your rights and duties, while gathering evidence to support your position in the dispute.
Do you need a lawyer for a business sale dispute?
Resolve the issue before it escalates by calling a lawyer on ContractsCounsel. A vetted, experienced lawyer on the platform will help you protect your assets, minimize your risks during and after the transaction, and help you with contract review.
