A Business Purchase Agreement, or Purchase of Business Agreement, is a legal contract used to officially sell any business to another person. A Business Purchase Agreement form can also be used only to sell some of a business’s assets or shares, not the entire business. In these cases, including all details regarding what assets or shares are being sold.
A Business Purchase Agreement is an official record of the sale and purchase and serves as proof of ownership for the buyer.
What is a Business Purchase Agreement?
A Business Purchase Agreement is like a bill of sale that documents the purchase of a business. Either asset 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 follow through with their promises and creates an opportunity to confirm the terms and conditions of the transaction.
Use a Purchase Agreement instead to buy or sell the property.
A Business Purchase Agreement will identify the following essential 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 not to share the details of the business transfer
- Non-Competition: the seller promises not to 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 to secure the best outcome from a business deal. [1]
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
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:
- The 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
- The 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.
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 agreement.
It will also need to include the information of the business being sold, such as name, location, description, and business entity type.
Step 2 – Business Assets
The business purchase agreement will set out 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 that you explicitly do not want to include in the sale.
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.
If you need to, you can also include excluded liabilities — any liabilities explicitly not included in the sale.
Step 4 – Purchase Price
One of the key 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.
You should also include whether you want to include how the purchase price will be allocated among the assets in the agreement and then detail how much will be allocated to each asset.
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. This is to cover any changes to the value of the business, such as specific net working capital or fair market value, that are 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 agreement 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.
Business Purchase Agreement Sample
Here’s what a typical business purchase agreement looks like:
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 during the transfer to avoid surprise bills. You must make many important considerations before exiting a business, so you must have an exit plan in place. Check out these valuable tips from five entrepreneurs who successfully exited their businesses. [2]
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.
Frequently Asked Questions
What are Assumed Liabilities?
Assumed liabilities are liabilities that are taken on by a party purchasing a business under the terms of a contract. Examples of liabilities from purchasing a business can include accounts payable, environmental liabilities, employee-related expenses, and contractual obligations.
What are Buyer’s and Seller’s Representations and Warranties?
Representations and warranties in a business purchase agreement are facts and promises about what is sold. They are assertions or assurances given by the parties and are typically one of the most negotiated sections of the agreement.
The seller usually makes several representations about the business, which the buyer relies on being factual and correct and assisting in their due diligence.
Buyer’s representations and warranties focus on statements of facts and assurances regarding the buyer and its standing, specifically about their ability to purchase the business.
What is a Condition Precedent?
Conditions precedent is certain events that must happen on the part of either the buyer or the seller for the closing transaction to occur.
What is a Non-Compete Clause?
A non-compete clause in a business purchase agreement dictates whether the seller is prohibited from engaging in a similar business once the business is sold. The non-compete is for a specific time and prevents the seller from participating in similar businesses in or near the city of the business being sold.
What types of business purchases can a business purchase agreement be used for?
A business purchase agreement can be used to sell any business to another person or business officially. A business purchase agreement will describe the company, assets, and any stocks that are being purchased.
What is the difference between an asset purchase and a business purchase?
A business purchase agreement is used to record a sale of a business and can be used to purchase the entire business or just some of a business’s assets or shares. An asset purchase agreement is solely used to purchase a business’s assets.