A Business Purchase Agreement, also known as a Purchase of Business Agreement, stands as a crucial legal contract facilitating the official sale of a business from one party to another. Notably, this document can be tailored for transactions involving the sale of specific business assets or shares rather than the entire business. In such cases, the agreement should meticulously outline the details of the assets or shares being transferred, providing a comprehensive record of the transaction.

Table of Contents

• Understanding the Business Purchase Agreement
• When to Utilize a Business Purchase Agreement?
• Importance of Having a Business Purchase Agreement
• How to Write a Business Purchase Agreement
• Frequently Asked Questions
• Business Purchase Agreement Sample

Understanding the Business Purchase Agreement

A Business Purchase Agreement essentially functions as a formal record of the sale and purchase, akin to a Bill of Sale for a business. This legally binding contract ensures that both the seller and purchaser adhere to their commitments, providing a framework to confirm the terms and conditions of the transaction. Rather than utilizing a generic Purchase Agreement, which is typically employed for property transactions, a Business Purchase Agreement is specifically designed for the unique intricacies of buying or selling a business.

Key components addressed in a Business Purchase Agreement include:

• Business Details: Comprehensive description of the company, assets, and/or stock being transferred.
• Closing Date: Specifies when the purchaser will make payments and the seller will deliver the assets.
• Confidentiality: An agreement between both parties not to disclose details regarding the business transfer.
• Non-Competition: The seller agrees not to engage in competitive activities post-transaction.
• Non-Solicitation: The seller commits not to hire any former employees.
• Parties: Identification of the seller and purchaser.
• Purchase Price: Details the payment for the transfer, including deposits or financing.
• Representations & Warranties: Statements of fact or promises about assets, business, and authority.

By negotiating the terms and conditions of the sale and documenting them in a Business Purchase Agreement, parties can ensure a smooth transaction and protect their interests.

When to Utilize a Business Purchase Agreement?

This specialized agreement is indispensable when considering the sale or purchase of a business. Its primary purpose is to meticulously document essential details, preventing potential misunderstandings. These can include issues such as:

• Lack of Seller Authority: Confirming the seller's power and authority to sell the business.
• Inadequate Business Licenses: Ensuring the business possesses the necessary licenses, permits, and authorizations.
• Financial Due Diligence: Verifying that a certified public accountant has examined financial statements.
• Undisclosed Liabilities: Preventing surprises related to undisclosed set-offs or counterclaims against accounts receivable.
• Unsettled Obligations: Confirming that all liabilities or obligations have been paid or discharged.
• Unexpected Financial Changes: Avoiding surprises like dividends being set aside or paid, sudden increases in salaries, or changes in the company's financial condition.

Before entering into a business deal, consulting with professionals such as accountants, attorneys, and brokers is advised to understand the tax, legal, and financial implications specific to the state.

Importance of Having a Business Purchase Agreement

Properly transferring business ownership requires more than just a verbal agreement. Without a written record, the intricate details negotiated during the deal could be forgotten or lead to complications down the road. Failing to memorialize the transaction in a Business Purchase Agreement can result in various issues, including:

1. Unclear Debt and Liability Status: Both parties may not have a clear understanding of the business's outstanding debts and liabilities, potentially leading to surprise bills.
2. No Exit Plan: Exiting a business without a well-defined plan can be chaotic. An exit plan is crucial for addressing the complexities associated with transferring ownership.

Situations Where a Business Purchase Agreement is Essential

The versatility of a Business Purchase Agreement makes it applicable in various business scenarios. Some common situations include:

How to Write a Business Purchase Agreement

Here’s a step-by-step on creating a business purchase agreement with a free business purchase agreement template.

Step 1 – Parties and Business Information

A business purchase agreement should detail the names of the buyer and seller at the start of the contract.

It will also need to include the information of the business being sold, such as name, location, description, and business entity type.

An example of where to write party names in our business purchase agreement template

Step 2 – Business Assets

The business purchase agreement will identify the specific assets transferred in the sale.

This could include physical assets such as vehicles, real estate, or furnishings and financial assets such as accounts receivable. It may also include intangible assets such as the business name, trademarks, patents, goodwill, and customer lists.

You will also want to include excluded assets you do not wish to include in the sale.

An example of where you should include information about business assets in our business purchase agreement template

Step 3 – Business Liabilities

A business purchase agreement should cover whether the buyer assumes any liability by purchasing the business. Liabilities may include accounts payable, environmental liabilities, employee-related expenses, lawsuits, and contractual obligations.

An example of where to include information about assumed liabilities in our business purchase agreement template

If you need to, you can also include excluded liabilities — any liabilities explicitly not included in the sale.

An example of where to include excluded liabilities in our business purchase agreement template

Step 4 – Purchase Price

One of the critical elements in a business purchase agreement is the purchase price. Here you should detail how much the buyer will pay to the seller for the purchase of the business and if the buyer will be paying a deposit when the agreement is signed.

An example of where to include the business purchase price in our business purchase agreement template

You should also include whether you want to have how the purchase price will be allocated among the assets in the agreement and then detail how much will be allocated to each asset.

An example of where to include any allocation of the purchase price in our business purchase agreement template

Another element of the purchase price is purchase price adjustments. This covers whether any adjustments will be made to the purchase price at closing to account for any differences in the business between the time of signing the agreement and the closing date.

It covers any changes to the company’s value, such as specific net working capital or fair market value, assumed by the buyer when signing the business purchase agreement.

Step 5 – Terms

The terms of a business purchase agreement take up the bulk of the contract and are made up of important information such as:

• Buyer’s representations and warranties
• Seller’s representations and warranties
• Conditions precedent (a condition or event that must occur before a right, duty, or interest arises)
• A non-compete clause (whether the seller is prohibited from engaging in a similar business once the business is sold),
• What should happen if a dispute arises
• Any additional provisions

Step 6 – Signatures

To finish your business purchase agreement, signatures by the buyer and seller, or their representatives, are required to make the agreement binding — this may need to be witnessed and notarized by a notary public.

An example of where to include signatures in our business purchase agreement template

In conclusion, a well-crafted Business Purchase Agreement is a vital tool for any business transaction. Whether you are on the selling or buying side, this agreement provides the necessary legal framework to safeguard interests and ensure a smooth transfer of ownership. To avoid pitfalls and streamline the process, it is essential to invest time in negotiating the terms and conditions and documenting them in a comprehensive Business Purchase Agreement.

Frequently Asked Questions

How does a Business Purchase Agreement differ from a generic Purchase Agreement?

A Business Purchase Agreement is specifically designed for buying or selling a business, addressing unique aspects of such transactions, while a generic Purchase Agreement is typically used for property transactions.

How can a Business Purchase Agreement protect me during a business transaction?

The agreement serves as a legally enforceable contract, ensuring that both parties adhere to their commitments. It provides a framework to confirm the terms and conditions of the transaction, protecting the interests of both the seller and the purchaser.

Is legal assistance necessary when drafting a Business Purchase Agreement?

While not mandatory, seeking legal advice is highly recommended. Legal professionals can ensure that the agreement is comprehensive, addresses all legal requirements, and protects the interests of both parties.

Business Purchase Agreement Sample

Here’s what a typical business purchase agreement looks like: