Sale of Business Contracts FAQ

What is a Sale of Business Contract?

Just as they sound, a Sale of Business Contract is a written agreement meant to formalize the sale of a business from one party to another. Typically, the standard Sale of Business Contract will deal with a business that is being sold in its entirety and does not apply to buying individual shares of a business or corporation.

The Sale of Business Contract does not just cover the identity and price of the business in question however. Each Sale of Business Contract will also identify the premises of the business, outline any deposits to be made, detail the date of the closing as well as include any additional terms that both parties agree upon before the sale is to be finalized.

Why do I need a Sale of Business Contract?

If you’re not buying or selling a business, you probably don’t! But for those of you who might identify with either of the two parties involved in this kind of deal – either the buyer or the seller – you should insist on it. Because buying a business can be a much more detail-oriented process than buying a simple piece of property, it’s important to make sure that you have a well-written legal document that outlines the entirety of the transaction for both parties.

Additionally, you can use the provisions of a business contract to make sure that the sale goes off the way you would prefer. This can include the customization of pricing terms, the schedule of the transaction, and any other requirements you want to have met before you either buy or sell the business.

What kind of provisions can I find in a Sale of Business Contract?

Though as a general rule you can insert any types of provisions that both parties agree to, there are some standard provisions you can expect to see in a Sale of Business Contract:

• Premises: This is the simple identification of not only the business but the commercial property through which it does business. Oftentimes the premises are included simply as a line-item in the overall price of the business.
• Amount of Sale:The overall amount of the sale should be included in great detail, which often means that other items such as equipment purchased as part of the business sale, should also be included here.
• How Paid: Not only will the contract lay out the price of the business, but how that price will be paid.
• Deposit and Date of Close: Similar to the provisions you might expect to see in a lease, the purchase of a business will detail the initial deposit of the purchase and then detail when the transaction can be closed.
• Additional Terms: The contents of a Sale of Business Contract do not have to be limited to the provisions above. They can additionally include any other agreements that the two parties have approved as part of the sale of business.

As the buyer, what kind of protections does a Sale of Business Contract offer me?

If you’re buying a business, the extent of your investment will necessarily warrant some caution in proceeding with the transaction. The Sale of Business Contract facilitates this caution by offering you some guarantees. For example, a good Sale of Business Contract will be rendered invalid if the seller has not lived up to some basic tenet of the agreement (such as whether or not the seller is fully authorized to make the sale). These protections allow the buyer an “out” in these extenuating circumstances.

As the seller, what kinds of protections are offered me?

For the seller, the most important part of selling a business is ensuring prompt and full payment. The Sale of Business Contract will also be sure to detail the method of payment so that you can be assured that payment has been made before fully closing on the transaction. Additionally, both parties will be able to add any other stipulations they see fit as long as both parties agree to the stipulations upon signing the contract itself.

How can I pay for a business?

It’s up to the individual contract, though typical types of payments are cash down payments, earnest money, and promissory notes payable. How your contract ultimately shakes out will depend on your individual agreement with the seller of the business.

Do I have any other obligations as a seller?

Many of these contracts will require that the seller of a business also include a provision that forbids them from forming or joining a competing business after the sale of the business in question has been completed. This is a Non-Competition clause and is often standard in these types of business arrangements.

When is a Sale of Business Contract valid?

Aside from meeting other requirements typical of contract law (such as the age and legal status of those signing the contract, their mental capacity, etc.) the Sale of Business Contract will have its own provisions upon which the contract’s validity will hinge. For example, if the buyer has been unable to come up with the payment promised, the seller will then not be required to live up to the other parts of the contract because it has, for all intents and purposes, been rendered invalid.

When is a Sale of Business Contract enforceable?

After a contract’s validity is established and the provisions of the contract have thus far been met, the contract will still be enforceable. This means that any party that has not lived up to its end of the bargain, so to speak, will be expected to do so and can be challenged legally if they continue to fail in their obligations.

When is a Sale of Business Contract effective?

A Sale of Business Contract is effective upon its signing, and providing that the conditions for its validity and enforceability have been met. This means that the contract itself will have a lot to say about its own effectiveness; much of the intent of a Sale of Business Contract is to render the transaction moot if one party has not lived up to their end of the agreement.