Business Purchase Agreement

Business purchase agreements are the best legal documents to use when buying and selling a business. More importantly, they outline the terms and conditions associated with the transaction and allow for a meaningful fair market valuation of all company assets and liabilities. However, poorly written agreements can fail to serve their intended purpose and result in unwanted legal consequences for either party.

This article defines business purchase agreements, what they include, what businesses use them, and more.

What is a Business Purchase Agreement?

Business purchase agreements , also called BPAs or business transfer agreements , are legal contracts that transfer ownership from the seller of a business entity to a buyer. This type of agreement contains provisions that govern the terms of sale.

A business purchase agreement can come in the form of a stock purchase agreement or asset transfer agreement .

What’s Included in a Business Purchase Agreement?

Buyers and sellers must adhere to a specific legal process when selling a business. Business purchase agreements initiate the legally binding purchase of a company after receiving a letter of intent . This type of agreement requires the buyer to purchase the business per the agreement’s terms and conditions.

Although business purchase agreements are complex, they generally contain several standardized provisions. The most vital element to remember is that while it’s best to leave contract drafting to a lawyer, it’s not a bad idea to establish a basic working knowledge of the terms.

Term 1. Party Identification

This provision appears at the beginning of the business purchase agreement. It contains the legal names and contact information for the seller and buyer. Ensure you identify all parties correctly since legal complications can result otherwise.

Term 2. Business Description

Detail an overview of the company and its operations in this provision. It should contain a statement attesting to the seller’s legal authority to authorize the sale, as well as other legal representations and warranties .

Term 3. Financial Terms

This provision includes the purchase price, any deposits required by the seller, and the date and time of the transfer.

Term 4. Sale

It is critical to define the type of sale in this section and the assets included and excluded from the sale. This provision will also include a section on property transfers detailing the condition and value of assets, such as equipment, tools, and property.

Term 5. Covenants

This provision details the seller’s obligations surrounding the closing, including taxes, loans, fees, benefit transfers, and salaries. Additionally, you can use this section to list buyer and seller agreements and protective clauses, such as a non-competition agreement .

Term 6. Transfers

The buyer and seller require a clear understanding of who is responsible for what, including the seller’s role, new employee training, and customer obligations. You can also detail the need for a bill of sale finalization to serve as the transaction’s conclusion.

Term 7. Third-Party Brokers

If third-party brokers were used, this provision should include the legal names and contact information for those intermediaries and the party responsible for broker compensation.

Term 8. Closing

This section of the business purchase agreement is typically straightforward as it addresses logistics, the closing date, and time. Additionally, it executes title transfers and specifies the money to be paid at closing.

Term 9 Warranties

Warranties offer that the premises and equipment comply with applicable government codes and regulations as of the closing date and that all taxes have been paid. This strategy ensures that the buyer and seller enter into a good-faith transaction.

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Who Should Use a Business Purchase Agreement?

Anyone buying or selling a business should use a business purchase agreement. This legally binding document outlines the terms of the transfer that protect both parties’ rights under local, state, and federal rules.

More Than a Business Purchase Agreement

Although the transaction is referred to as a business purchase, it may be more accurate to refer to it as a business asset and liability purchase . A transfer cannot be accomplished simply by stating that the seller is transferring all rights to the buyer.

Accurately Detail Asset Transfers

Sellers transfer the various assets, liabilities, and goodwill acquired by the company over time under a business purchase agreement. This assertion is true regardless of the business’s organizational structure. The business purchase agreement must include a detailed list of the transferred assets and liabilities.

This web page discusses asset purchase agreements.

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Can I Write my Own Business Purchase Agreement?

Yes, you can technically write your own business purchase agreement since there are no laws against doing so. However, many of the available free and premium templates online were written for another business or general situation. Please consult with an attorney first since they can tailor an agreement for your exact business needs while avoiding all legal mistakes.

Can a Buyer Back out of a Business Purchase Agreement?

Yes, a buyer can back out of a business purchase agreement before signing. Until the buyer signs it, they can legally back out of the agreement you have with them. When ready to purchase your business, buyers must complete preliminary steps before signing the purchase agreement, which will safeguard you both in several ways

Here are a few steps for discouraging this situation from arising:

Step 1. Require a Letter of Intent

Letters of intent are legal documents summarizing the proposed business purchase agreement terms, including the purchase price, due diligence terms, and deposit amount. Buyers typically draft their own documents and submit them to you for approval. This action indicates their serious intent to purchase the business, so sellers should request one from buyers.

Step 2. Request a Deposit

Letters of intent are not legally binding, nor do they guarantee that a sale will occur. It ensures that the seller will not advertise their business for sale during ongoing active negotiations, and you can require them to pay you a deposit during this time. However, if the negotiations do not result in a purchase agreement, you will refund the buyer’s deposit.

Step 3. Discuss Financing

A signed letter of intent allows buyers to present a sincere interest in the business for capital lending. They may also submit the letter to their lawyer when determining if the terms are fair when acquiring your business. In general, a letter of intent is more beneficial to the buyer than to the seller.

Step 3. Incorporate a Confidentiality Agreement

A letter of intent should include a confidentiality clause prohibiting the buyer from using or disclosing your information to a third party if the sale does not happen. This protection is the best option for a seller while attempting to secure a purchase agreement with a buyer.

The only genuine concern you should have during these negotiations is maintaining the confidentiality of your business’s sensitive information. Given that the buyer will be performing due diligence and examining your company’s financial and customer information, you don’t want them to walk away from the deal and then use this information for financial gain.

Business Purchase Agreement Sample

BUSINESS PURCHASE AND SALE AGREEMENT

THIS AGREEMENT (the “Agreement”) is made effective this [DATE] by and between [SELLER NAME] (the “Seller”) and [BUYER NAME] (the “Buyer"), referred to collectively as “the Parties”.

The Parties have reached an understanding with respect to the Buyer’s purchase of [BUSINESS NAME]. The Parties agree as follows:

1. Seller. [SELLER NAME], an individual with the following address: [ADDRESS].

As of the date of this Agreement, Seller owns one hundred percent (100%) of the outstanding Membership Interests in [COMPANY NAME]. “Membership Interest” includes a full and complete ownership interest in the company, including all voting and management rights, and economic interests and rights, arising under [STATE] law.

2. Buyer. [BUYER NAME], a [STATE] limited liability company with an address of: [ADDRESS].

Buyer desires to acquire the Membership Interest currently owned by Seller.

3. Sale of Membership Interest. Seller hereby agrees to sell, and Buyer agrees to buy one hundred percent (100%) Membership Interest in [COMPANY]. This sale in intended to convey any and all ownership interests currently held by Seller.

4. Representations-Seller. Seller represents that his/her Membership Interest is free and clear of all encumbrances or security interests of any kind, and that he has not sold, transferred, assigned, or otherwise compromised such Membership Interest in [COMPANY] in violation of [STATE] law. There are no judgments, charging orders, or liens against Seller and no litigation or proceedings pending against Seller or [COMPANY] which might impede the actions hereunder.

5. Non-Compete. For a period of [NUMBER OF YEARS] years after the Closing, Seller shall not: (a) within any geographic region in which Buyer or Business operates, compete with (or become interested as an owner, partner, principal, agent, director, officer, or consultant, with any company or business that competes with) any product or service currently offered by Seller. Seller shall not, at any time, whether individually or on behalf of or through any third party, use any of the assets, or the trade secrets or other confidential information, 2 to solicit, divert, entice, persuade, or appropriate, either directly or indirectly, the business of any client, customer, partner or affiliate of Buyer, or to otherwise request or encourage any such party to breach any agreement or terminate any relationship between such party and Buyer.

6. Restraint. In further consideration of Buyer, Seller will not at any time after Closing use a symbol, logo, domain name, trademark, or business name substantially identical or deceptively similar to the business names, trademarks or the domain names associated with the Entity.

7. Transfer of Licenses and Certifications. Parties agree that any licenses and certifications owned by [COMPANY] shall remain the property of [COMPANY] and that any licenses and certifications owned personally by [SELLER] shall remain the property of [SELLER]. A description of the licenses and certifications owned by [COMPANY] is attached to this Agreement as Exhibit “A.” Parties agree to cooperate to execute any releases, assignments, amendments, or other documents necessary to effectuate transfer of said licenses and certificates. Furthermore, Seller agrees to indemnify Buyer against all claims made regarding rights and ownership of said licenses and certificates.

8. Retention of Debts, Liabilities, and Payables. Parties agree that all debts, liabilities, and payables of [COMPANY] and [SELLER] acquired, established, or obligated prior to closing will remain the responsibility of [BUYER]. A description of the known debts, liabilities, and payables of [COMPANY] subject to this clause is attached to this Agreement as Exhibit “B.” This list is not intended to be exclusive. Parties agree to cooperate to execute any releases, assignments, amendments, or other documents necessary to effectuate retention of said debts, liabilities, and payables. Furthermore, Seller agrees to indemnify Buyer against all claims made regarding said debts, liabilities, and payables.

9. Tangible Assets. Parties agree that all tangible assets owned by [COMPANY] or [SELLER] acquired prior to closing will remain the property of [BUYER]. A description of the tangible assets of [COMPANY] subject to this clause is attached to this Agreement as Exhibit “C.” Parties agree to cooperate to execute any releases, assignments, amendments, or other documents necessary to effectuate retention tangible assets.

10. Bank Accounts. Parties agree that all bank accounts owned by [COMPANY] prior to closing will remain under the control and ownership of [SELLER]. [COMPANY] will close said bank accounts within thirty (30) days of closing. A description of the bank accounts subject to this clause is attached to this Agreement as Exhibit “D.”

11. Consideration. In consideration for the transfer of a one hundred percent (100%) Membership Interest in [COMPANY] under this Agreement, Buyer shall pay [PURCHASE PRICE] and No/100 US Dollars to [SELLER].

12. Closing. The closing of the transactions contemplated by this Agreement (the "Closing") will take place at such time and place as Buyer and Seller may mutually determine.

13. Amendments or Execution of Company Documents. Seller agrees to cooperate with Buyer to execute any releases, assignments, amendments, or other documents necessary to effectuate the events and intent contemplated by this Agreement.

14. Investment Intent of Buyer. Buyer acknowledges that the interests transferred herein are not and will not be registered under the [LAW] Securities Act or the Federal Securities Act of 1933, and are being sold in reliance on the exemptions and exclusions set forth in those laws as a sale not involving a public offering. Further, Buyer is acquiring said interest for its own investment purposes and not with the intent of selling or otherwise transferring such interest. Buyer is able to, and hereby does, appreciate and accept the risk inherent in the purchase of this non-liquid investment interest.

15. Entire Agreement. This Agreement and the Attached Employment Agreement constitute the entire agreement between Buyer and Seller with respect to the subject matter hereof and may be altered, amended, or repealed only by a duly executed written agreement.

16. Severability. If any part of this Agreement shall be held to be unenforceable for any reason, the remainder of the Agreement shall continue in full force and effect.

17. Online Mediation. If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the JAMS Endispute online mediation service https://www.jamsadr.com/endispute/, or similar online mediation service agreed to by the parties.

18. Controlling Law. This Agreement shall be governed and enforced in all respects by the laws of the State of [STATE].

IN WITNESS WHEREOF, the parties have executed this Agreement this [DATE].

SELLER: ______________________

BUYER: ______________________

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