Like any contract, the agreement to buy or sell a business follows basic elements binding the parties to the terms as well as providing for ramifications if the agreement is not executed or followed. Legal instruments in the form of contracts have been used for centuries to protect parties involved in business transactions, utilizing the law as pressure to make sure things work out. While they are not perfect, as proven by the fraud that can occur daily in different markets and even on today’s internet, contracts still provide effective protection for most, especially for large-value transactions like business.

Business Sale Agreement

A business sale agreement tends to follow a certain format, and it is essential that the given agreement used includes specific elements for minimum legal protection to be applied. Without these elements, the agreement may be fundamentally flawed and even useless to enforce in court if needed. 

Some of the elements are very obvious, such as the naming of the parties involved. However, other content is subtle, and it takes an experienced hand to remember what to include in these criteria as well as how to apply them effectively. 

Reach out to Gabriela Noemí Smith for experience and proven legal assistance when dealing with a company sale agreement.

What Is Included in the Sale of a Business?

The typical purchase agreement for a business will at least have the following minimal elements to function successfully and be enforceable:

• Defining the parties – Every party to the sales agreement must be identified clearly and in writing. There should be no silent parties or inferred involvement. Those in the business sales agreement are either spelled out or not participating at all. 

Once identified, each party with a right to do so should also be a signing name to execute the contract. This makes it legally binding, holding the parties to the terms of the agreement and showing they voluntarily did so legally.

• Describing the actual exchange – Known in legal terms as the “consideration,” the agreement needs to have a clear detail of what is being exchanged between the parties. Usually, in a company sale agreement, the terms spell out the monetary amount paid in exchange for title to the business and its specified assets. 

However, the exchange can also specify the treatment of business debt accountability, future income, intangible assets, rights to obligations by other parties to the business, and more. Whatever is part of the deal to be traded between the parties gets written in detail in this section.

• Representation – The agreement needs to hold the parties accountable for what they represent as fact, detail, and information in the sales agreement. This particular aspect helps prevent fraud or if it occurs or there is a critical omission, the party that does so can be penalized by the other accordingly to protect their interest at risk. 

One of the most common problems involves exaggerating a business’ value with assets or controls that do not exist or are not as valuable as described. Representation protection helps prevent this sort of fibbing.

• Warranty – When it comes to fixtures, processes, equipment, systems, software, and facilities, a buyer wants to know that everything represented is in working order and can be relied on. Otherwise, it might as well be as useful as a broken car with a shiny hood. 

Warranties guarantee that things are in working order with the business’ assets and systems and that the seller will make sure they are repaired if an issue is found immediately after the sale. Most warranties are limited; wear and tear quickly becomes the buyer’s responsibility after the sale.

• Covenants, Restrictions, and Conditions – No business operates independently without restrictions. There are typically conditions and restrictions already in place that, with a sale, have to transfer from the seller to the buyer. These all need to be spelled out, or the seller could still be left on the hook for those conditions. 

They are usually tied to the real estate involved, but some conditions can apply to the equipment, loans, agreements with third parties, and similar. Again, anything that applies to the business as expected behavior or performance should be defined and included in the sales agreement as a term accepted.

• Boilerplate Terms – This category should capture all the standard protections and caveats that apply to a well-crafted business sales agreement. Most templates from reputable sources have this section already pre-written, and additional terms specific to an industry or locality can also be included. 

In function, this section acts as a generic catch-all for anything not specified above but needed to make the agreement work for both parties. Well-crafted boilerplates always include a piece on how to resolve disputes as well as which venue legal matters will be heard in, like an arbitration clause, for example.

• The Signature Section – Again, a contract is not valid unless executed. Legally, the signature of all parties provides this approval and the required term. It shows personal commitment to the binding of the contract.

Contracts Help Business Happen Everywhere

A business sale agreement, whether for companies or multinationals, all need a well-crafted company sale agreement to transfer company ownership properly. The Firm Gabriela N. Smith, Legal Counsel | Asesora Legal helps businesses buy and sell. 

No matter the industry, a business sale agreement still needs to be crafted correctly to protect parties as well as anticipate challenges in the transaction. Gabriela Noemí Smith can provide you with peace of mind in this arena. Contact us us to find out more.

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