A Business Purchase Agreement, or Purchase of Business Agreement, is a legal contract used to officially sell any type of business to another person. A Business Purchase Agreement can also be used to only sell some of a business’ assets or shares, not the entire business. In these cases, be sure to include all details regarding what assets or shares are being sold.
A Business Purchase Agreement acts as an official record of the sale and purchase, and also serves as proof of ownership for the buyer.
1. What is a Business Purchase Agreement?
A Business Purchase Agreement is like a bill of sale that documents the purchase of a business. Either assets of a business or shares in the company can be transferred. As a legally enforceable contract, this Agreement ensures that both the seller and purchaser will follow through with their promises and creates an opportunity to confirm the terms and conditions of the transaction.
If you’re looking to buy or sell property, use a Purchase Agreement instead.
A Business Purchase Agreement will identify the following basic elements:
- Business: describe the company, assets, and/or stock being transferred
- Closing Date: when the Purchaser will pay and the Seller will deliver the assets
- Confidentiality: both parties agree to not share the details of the business transfer
- Non-Competition: the seller promises to not compete with the business
- Non-Solicitation: the seller will not hire any of their former employees away
- Parties: identify the Seller of the business and the Purchaser
- Purchase Price: payment for the transfer, including any deposits or financing
- Representations & Warranties: each party is relying on statements of fact or promises about the assets, business, and authority to enter the transaction
Negotiate the terms and conditions of the sale of a business and document the transaction with a Business Purchase Agreement at the closing. It’s important to equip yourself with the skills to develop a solid negotiation strategy in order to secure the best outcome from a business deal.
As a reference, people often call this agreement by other names:
- Agreement for Purchase and Sale of Servicing
- Agreement of Purchase and Sale of Business Assets
- Agreement to Sell Business
- Asset Purchase Agreement
- Bill of Sale and Assignment and Assumption Agreement
- Business Sale Agreement
- Business Sale Contract
- Business Transfer Agreement
- Contract for Sale of Business
- Purchase of Business Agreement
- Sale of Business Agreement
- Share and Asset Purchase Agreement
- Small Business Purchase Agreement
Business Purchase Agreement Sample
The sample business purchase agreement below details an agreement between the seller, ‘Dorothy C Miller’, and the buyer, ‘Fred M Johnson.’ Dorothy C Miller, a California corporation that provides lawn care to residential areas, sells itself to Fred M Johnson according to the price and conditions specified.
2. When to Use a Business Purchase Agreement
If you are either considering selling or purchasing a business, you should memorialize such an important transaction in a Business Purchase Agreement to confirm all details are carefully considered and documented.
This Agreement allows both parties to prevent the following misunderstandings:
- Seller does not have the required power or authority to sell the business
- Business lacks the needed license, permits or authorizations to operate
- Financial statements have not been examined by a certified public accountant
- Accounts receivable may be subject to undisclosed set-offs or counterclaims
- Some liabilities or obligations have not already been paid or discharged
- Dividends have been unexpectedly set aside or paid
- Salaries and benefits to officers or employees have been unexpectedly increased
- Existing condition of the company does not match Purchaser’s understanding
Consult your accountant, attorney, and broker (if any) for the best tax, legal, and financial implications of buying or selling a business in your state.
3. The Consequences of Not Having a Purchase of Business Agreement
After doing your research and negotiating the best deal, properly transfer the ownership of a business with proper documentation. Unless you memorialize your negotiation in writing, the thorny details of the deal could get lost or cause problems later.
Both parties should clearly understand the business’ outstanding debts and liabilities at the time of the transfer to avoid surprise bills. There are a multitude of important considerations you must make before exiting a business, so it’s essential you have an exit plan in place. Check out these useful tips from five entrepreneurs who successfully exited their businesses.
4. Common Business Purchase Agreement Situations
Here are just a few of the situations when a Business Purchase Agreement is commonly used:
- Sell your company name
- Sell furniture, machinery, or supplies from your business
- Purchase another company’s real estate or office
- Sell only your customer list or accounts receivable
- Ensure Seller’s representations and warranties are enforceable
Purchasers will want a guarantee from the Seller that the business is in good standing with the state and has the licenses needed to operate legally.
5. What to Include in a Business Purchase Agreement
Business Purchase Agreement should generally address the following:
- Who is selling or transferring the business and who will be the new owner
- What assets of the business are being transferred or number of shares being sold
- Whether existing employees will be re-hired by the new owner
- When the transfer will be complete (“Closing Date”)
- How liabilities like loans, mortgages, or accounts payable will be transferred, if at all
Here are some other useful details an Agreement might include:
- Accounts Receivable: detail how outstanding payments will be collected and handled
- Assets: detail all items that should be included in the sale like furniture, machinery, accounts receivable, or customer lists or excluded in the sale like cash, real estate, and automobiles
- Conditions Precedent: actions that must take place before the Closing Date
- Disclosure: Purchaser can access documents and records between the date of the Agreement and before the Closing Date to confirm the representations and warranties
- Inventory: include all purchases that will be part of the sale
- Liabilities: which debts, if any, will be transferred from the Seller to the Purchaser
- Payment Terms: detail the amount that will be transferred on closing day or paid later
- Termination: confirm the transfer of employees from the Seller to the Purchaser and detail the termination and re-hiring process and paperwork needed