What to Include in a Business Purchase Agreement

When two parties reach an agreement to buy or sell a business, it is important to put the terms of the deal in writing. This document is called a business purchase agreement, and it outlines the specifics of the transaction. A well-written and comprehensive agreement can help both parties understand their respective roles and responsibilities, and can prevent any misunderstandings or disputes from arising in the future. In this article, we`ll explore what should be included in a business purchase agreement.

1. Purchase price and payment terms

The purchase price should be clearly stated in the agreement, along with any payment terms such as a deposit and installment payments. Both parties should agree on how the payment will be structured and when it will be made.

2. Asset or stock purchase

The agreement should specify whether the sale is an asset purchase or a stock purchase. In an asset purchase, the buyer acquires only the assets of the business, while in a stock purchase, the buyer acquires all of the shares of the business.

3. Representations and warranties

Both the buyer and the seller may make representations and warranties, which are statements that each party makes about the business being bought or sold. These statements are intended to provide assurances about the business and can include information about the business’s financials, operations, and legal status.

4. Due diligence

The buyer should have the opportunity to conduct due diligence before the sale is finalized. Due diligence involves a thorough review of the business, including its financial statements, contracts, and legal documents. The agreement should outline the scope and timing of the due diligence process.

5. Non-compete and confidentiality clauses

The agreement should also include non-compete and confidentiality clauses to protect the buyer’s interests. A non-compete clause prohibits the seller from starting a competing business or soliciting the company’s customers or employees for a certain period of time. A confidentiality clause protects the buyer’s confidential information and trade secrets.

6. Closing conditions

The agreement should list all of the closing conditions that must be met before the sale can be finalized. These conditions can include obtaining necessary licenses, securing financing, and receiving approvals from third parties.

7. Dispute resolution

Finally, the agreement should include provisions for dispute resolution in case any issues arise between the buyer and the seller. This can include mediation, arbitration, or litigation in court.

In conclusion, a business purchase agreement is a critical document that outlines the terms of a business sale. It should be comprehensive, covering key details such as the purchase price, asset or stock purchase, representations and warranties, due diligence, non-compete and confidentiality clauses, closing conditions, and dispute resolution. With a well-written agreement in place, both parties can move forward with confidence and clarity.