What are the contents of a sale agreement when selling a business?
A business sale agreement is a final contract signed by a business seller and buyer to complete the sale of a business. It is a formal document that binds both parties to the contents of the agreement, such as the terms of sale.
The final contract provides a reference point to the buyer concerning the conditions of the sale as it encapsulates the finer details and key components of the business sale contract that are legally binding, such as indemnities and warranties.
Closing the deal: What agreements are involved during the business sale process?
When selling a business using a business broker, your business transfer agent will support you throughout each stage of the process, alongside a legal professional, such as a solicitor. Throughout the business sale process, you will encounter a series of documents, both formal and informal to assist, record and govern the sale, such as a:
- Sales memorandum: Also known as a sales memo or information memorandum, the marketing collateral is distributed to potential business buyers to market your business for sale. It provides an overview of your business and further instructions to interested parties on how to register interest
- Non-disclosure agreement: You may issue a non-disclosure agreement to restrict the contents of the deal from being divulged and to protect the sale
- Heads of terms agreement: This is a summary of the terms of sale, issued at the beginning of sales negotiations while the final business sale contract is compiled
- Final contract: The final business sale agreement is the document that will bind the deal and provide the green light to complete the business transfer
The business sale contract will mark the final stage before the deal is closed, so it is vital that you seek support from a legal professional. The contents of a typical business sale agreement are often complex and exhaustive.
We run through what’s included in a final contract to help you understand what considerations must be made when selling a business.
- Previous sales and acquisitions experience
- Sector specialisms and average success rate
- Sales value expectations and growth potential
What’s included in a final contract when selling a business?
The business buyer must comply with the pre-conditions detailed in the final contract to successfully buy the business. The final contract is extensive as it will cover the foundations of the business sale agreement and provide clarity on the intricacies of the deal.
Contents of a business sale contract:
Sale agreement – Terms of sale address the agreement made between the business seller and buyer, including the conditions of the sale
Purchase price - Agreed sale price based on the valuation of the business
Payment structure – Details of the agreed payment structure, such as deferred payments, earn-out agreement and/or seller financing
Transfer of contracts – Sale of freehold property, commercial, property and employment contracts, including TUPE considerations (Transfer of Undertakings - Protection of Employment)
Sale completion - Items to be delivered upon transfer of the business
Breakdown of assets, liabilities, and creditors - What’s included and excluded in the sale
Warranties, disclosures, and indemnities – This is a legally binding element that limits liabilities and protects both parties if the sale falls through
Covenants and non-competes – A non-compete agreement may be issued to restrict buyer activity post-sale. A covenant may be on the property or its land to restrict an action
The bottom line of a final sale agreement is to stipulate strict conditions with which the business buyer must comply with. Your position as the business seller must be protected, and you must strive to lock a competitive deal that is legally sound, lucrative and mirrors the true and fair financial value of your business.
Preparing a final contract – How can Selling My Business help?
The Selling My Business team are highly experienced business brokers and valuers with a wealth of knowledge on how to successfully find a buyer for a business and push the deal over the line. We can advise on a variety of business sales, including goodwill and asset sales, and can support you during the legal stages of the process.
For support on how to sell a business, how to negotiate a sale price and understanding contracts when selling a business, get in touch with an experienced business broker at Selling My Business for a free consultation.
