Business Sale Agreement

What is a business sale agreement?

A business sale agreement, also sometimes called a business purchase agreement, is a document used by the seller of a company and the buyer of that company. Through the business sale agreement, the parties can outline the terms and conditions of the sale.

What are the different types of business sale agreements?

There are two main types of business sale agreements. The first type is known as an asset sale. In an asset sale, all the assets of the business are sold and, therefore, control and ownership of the business is sold. The second type is known as a share sale. In a share sale, all the shares of the business are sold, and therefore control of ownership is transferred. In a share sale, all the shares of the business must be sold to transfer control.

What is the difference between a business sale agreement and a stock sale and purchase agreement?

Though these documents are similar, they involve the transfer of different assets and have different final outcomes. In a business sale agreement, the buyer purchases the assets and liabilities of the business, such as inventory, equipment, or intellectual property, as well as the actual legal entity itself. If the business is sold through a share sale, the buyer purchases all of the available shares to become the new owner of the business. By contrast, a stock sale and purchase agreement involves the buyer purchasing only a portion of the available stock in a business. So, they will not have full ownership over the business.

Is it mandatory to have a business sale agreement?

Yes, it is mandatory to use a business sale agreement when buying or selling a business. In many states, the sale of a business must be documented in writing to be considered legally enforceable. Without a formal business sale agreement, it as if the business has not been sold at all in the eyes of the law. It is also an important document to protect both the buyer and the seller. By using a written sale agreement, both parties have in writing the specifics of the sale, which can be referred to in case of any future misunderstanding or dispute.

What are "assets"?

Assets are all the things owned by the business. These can be both tangible, like physical inventory and equipment, or intangible, like trademarks and patents.

What are "shares"?

Shares, also known as stocks, represent a portion of ownership in a business. By buying shares of a business, someone owns part of that company. The greater percentage of the total number of shares available someone owns, the greater the percentage of ownership in the business itself.

What are the prerequisites of a business sale agreement?

Prior to engaging in the business sale agreement, the prospective buyer should conduct thorough background research on the business to be sure that it is a sound investment. They would want to know specifically about any pending litigation or bankruptcy actions that the business may be engaged in. They should also find out the extent of the current liabilities and debts that the business owes. Before agreeing to the sale, the buyer should have a full picture of the current health of the business. This process is known as due diligence.

What should be done once the business sale agreement is finished?

Once the business sale agreement has been written, it should be signed and dated by both the buyer and the seller, with a copy of the document being saved by each party. It does not need to be witnessed or notarized to be enforceable.

The parties should then go about transferring ownership by turning over any leases, bank accounts, or other assets. Depending on the form of the business, any necessary documents describing the change in ownership should be filled out and filed with the state, tax authorities, and relevant license granters. For more information about the process, please refer to the guide How to Transfer Business Ownership.

Which documents should be attached to the business sale agreement?

If the sale involves the transfer of tangible assets, the parties should complete a bill of sale and attach it to the business sale agreement.

Is it necessary to register the business sale agreement?

The sale agreement itself does not need to be registered. However, depending on the form of the business, for example an LLC or an S Corp, the sale must be registered with state authorities using their own required forms.

What must a business sale agreement include?

A valid business sale agreement must contain at least the following mandatory clauses:

• Identifying information: The business sale agreement should include information describing the buyer and the seller, including their names, addresses, and contact information.
• Description of the business: The business sale agreement contains the name and a detailed description of the business being sold. The description includes details such as what it sells or what services it provides.
• Type of sale: The business sale agreement specifies whether the sale will be an asset sale, where physical assets of the business are being sold, or a share sale where all the stocks in the company are being sold.
• Pricing details: The business sale agreement outlines details about how the price of the business will be calculated and paid. If the sale is a share sale, the pricing could be done on a per stock basis or just one overall purchase price listed. Similarly, if the sale is an asset sale, the pricing could be done for each individual asset or a lump sum price for the entirety of the assets.
• Closing date: The business sale agreement includes the closing date when the sale will be finalized, as well as the location where this will happen.
• Liabilities responsibility: The business sale agreement says who will be responsible for liabilities, also known as debts, of the business before the closing date.

In addition to the above mandatory information, the following information may also be included:

• Deposit: The seller has the option of requiring the buyer to pay a deposit, also known as money down, before paying the rest of the price of the sale.
• Pending litigation: The business sale agreement gives the seller of the business the option to disclose any pending litigation or intellectual property infringement claims in which the business is currently involved.
• Transfer of employees: the business sale agreement can specify that the employees are being included in the sale of the business, meaning that the current employees will keep their jobs, titles, and salaries when the ownership is transferred.
• Noncompete and nonsolicitation: The business sale agreement gives the buyer the option to require that the seller does not compete or try to poach away clients or employees for a period of time after the sale of the business.

Which laws are applicable to business sale agreements?

Business sale agreements in the United States are generally subject to specific state laws. These state laws regulate the formation, operation, and dissolution of companies, which each state having its own specific laws. If the sale involves the transfer of stock, federal security regulations also govern it. The sale must comply with the Securities Act of 1933 and the Securities Exchange Act of 1934. Individual states also have what are known as blue sky laws. These laws govern the offering and sale of securities within that state.

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