A Few Key Points on the Business Sale Agreement
When it's time to sell your sole-proprietorship (or partnership), a Business Sale Agreement sets down the terms of the sale so you can make the purchase official. The agreement helps you define and agree to the terms of the sale, including the purchase price and the closing details of the transaction.
Typically, parties who wish to enter into this type of transaction first enter into a less formal agreement called a Letter of Intent. This document lays out in the broadest terms the high level specifics of a deal (purchase price, timing, etc.).
This Business Sale Agreement is designed for the sale of a sole-proprietorship or partnership which means it will focus the sale of the business assets.
After the participants have a general agreement on broad terms, they begin negotiating the final Business Sale Agreement. During this period the buyer conducts a thorough review of the company called Due Diligence. The parties exchange documents and examine other items to ensure they have an accurate picture of the business.
Selling your company is an important day for any business owner and preparing the right documents is a key activity in finalizing a smooth transaction.
View all document templates required to buying or selling a business.
BUSINESS SALE AGREEMENT
This Business Sale Agreement (the "Agreement") is made and entered into on [INSERT DATE], by and between [INSERT SELLER NAME], doing business as [INSERT COMPANY NAME] (hereinafter The Business), having its principal office of business at [INSERT BUSINESS ADDRESS] ("Seller"), on the one hand, and [INSERT BUYER NAME], having its principal office of business at [INSERT BUYER ADDRESS] ("Buyer"), on the other hand. Seller and Buyer are collectively referred to herein as the "Parties", and are sometimes referred to individually as a "Party".
WHEREAS, Seller is doing business as, and is the owner of a [INSERT BUSINESS NAME], located at [INSERT BUSINESS ADDRESS] (collectively, the "Business");
WHEREAS, Seller desires to sell the Business to Buyer, and Buyer desires to purchase the Business from Seller.
NOW, THEREFORE, for and in consideration of the mutual covenants and benefits derived and to be derived from this Agreement by each Party, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as follows:
A. Subject Matter
1. Description of Business
The Business includes the following properties: [DESCRIBE ANY REAL PROPERTY SUBJECT TO THE SALE]
The Inventory, which includes the stock in trade and merchandise, raw materials, work in progress and finished goods to be sold and purchased under this Agreement.
All the furniture, fixtures, equipment, and other tangible assets.
All the trade, goodwill, and other intangible assets.
[The leasehold interest owned by Seller for premises on which the business is located, pursuant to a valid assignment of lease] [INSERT IF APPLICABLE]
Agreement to Sell
Subject to and in accordance with the terms and conditions of this Agreement, Buyer agrees to purchase the Business from Seller, and Seller agrees to sell the Business to Buyer. Seller represents and warrants to Buyer that it has (and Buyer will have) good and marketable title to the Business and all assets, free and clear of all liens and encumbrances.
2. Purchase Price and Method of Payment
Buyer shall pay and Seller shall accept the purchase price for the Business as follows:
As total consideration for the purchase and sale of the Business (including its tangible and intangible assets as described above), and Buyer's assumption of the assumed obligations and all other liabilities provided for in this Agreement, the Buyer shall pay to the Seller the sum of $[INSERT PURCHASE PRICE], and such total consideration to be referred to in this Agreement as the "Purchase Price".
Subject to the following conditions, the Buyer shall make final payment of the remaining unpaid amount of the Purchase Price at closing. Buyer agrees to pay the entire amount at closing. Concurrent with the execution of this Agreement, Buyer has deposited with the Seller or Seller's Escrow Agent the sum of $[INSERT ESCROW AMOUNT], (hereinafter referred to as "Earnest Money") as earnest money and a partial payment of the consideration under the Contract. In the event that the purchase and sale shall be consummated pursuant to the terms of said contract, Seller or Seller's Escrow Agent shall, at such closing, deliver to Seller the Earnest Money, and Buyer shall be given credit toward the purchase price for the payment of the Earnest Money. In the event that the closing does not occur, Buyer's deposited earnest money should be returned to Buyer. Unless the Buyer does not make a good faith effort to obtain financing, the Buyer shall be returned their earnest money if closing does not occur.
The Purchase Price shall be allocated for tax purposes as follows:
|Asset Purchased||Fair Market Value|
|Real Property||$[INSERT AMOUNT]|
|Fixtures and Equipment||$[INSERT AMOUNT]|
|Goodwill, Tradename, and other intangible Assets||$[INSERT AMOUNT]|
|Accounts Receivable||$[INSERT AMOUNT]|
|Fair Market Value||$[INSERT AMOUNT]|
Buyer and Seller each acknowledge that the amount of Purchase Price allocated to the Business assets represents the fair market value of the properties. Buyer and Seller each agree to report the sale of the business for income tax purposes according to the allocations set forth herein.
Time and Place of Closing
Closing is the date and time at which parties agree to finalize this transaction. The closing date is designated as [INSERT DATE], provided there are no unforeseen delays. Time is of the essence and in no event shall closing be later than [INSERT NUMBER] calendar days after designated closing date, unless an extension is agreed upon in writing between the Buyer and the Seller.
At Closing, Seller shall deliver to the Buyer a final, executed Bill of Sale transferring to Buyer all of the assets of the Business sold hereunder, free and clear of any and all liens, encumbrances, security interests, debts or taxes of any nature whatsoever. The Seller shall also produce an Affidavit of Title indicating the Seller's authority to sell and transfer the Business and its assets. Finally, the Seller shall execute and deliver an assignment of the assumed name of the Business to the Buyer and any other documents necessary to finalize this Agreement.
B. Representations and Warranties of Seller
Seller makes the following representation and warranties as of the date hereof and as of the date of Closing, except when otherwise indicated.
Organization and Standing
The Business is in good standing under the laws of the State of [INSERT STATE] and is qualified to carry on its business in the State of [INSERT STATE].
Authority Relative to this Agreement
Except as otherwise stated herein, the Seller has full power and authority to execute this Agreement and carry out the transactions contemplated by it. No further action is necessary by the Seller to make this Agreement valid and binding upon Seller and enforceable against it in accordance with the terms hereof, or to carry out the actions contemplated hereby. The execution, delivery, and performance of this Agreement by the Seller will not constitute:
(i) a violation of any order, judgment or decree to which it is a party or by which its assets or properties is bound or affected; or
(ii) result in the creation of any lien, charge or encumbrance upon its assets or properties except as stated herein.
Authorization and Enforceability
This Agreement constitutes Seller's legal, valid and binding obligation, enforceable in accordance with its terms, subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and conveyance and other laws for the protection of creditors, as well as to general principles of equity, regardless whether such enforceability is considered in a proceeding in equity.
The Seller has timely prepared and filed all federal, state, and local tax returns and reports as are and have been required to be filed, and all taxes shown thereon to be due have been paid in full, including but not limited to sales tax, withholding tax, and all other taxes of every nature.
The Seller has good and merchantable title to all of its properties and assets that constitute "the Business" as defined herein. Unless otherwise agreed to by the Parties, at Closing such properties and assets will be subject to no mortgage, pledge, lien, conditional sales agreement, security agreement, encumbrance or charge, secured or unsecured, except for those taxes which shall be pro-rated as of the date of Closing. Seller has or will pay all debts incurred by it up to the date of occupancy by Buyer including all employee compensation and utilities.
Unless otherwise disclosed herein, there is no action, suit, proceeding, claim or investigation by any person, entity, or governmental entity pending or, to Seller's knowledge, threatened against it before any governmental entity that impedes or is likely to impede its ability to consummate the transaction.
Compliance with Applicable Laws
None of the Seller's actions in transferring good and merchantable title to those assets and properties set out in herein are prohibited by or have violated or will violate any law in effect on the date of this Agreement or on the date of closing.
Documents for Review
The Seller's Documents for Review enumerated in Exhibit "A" attached hereto and made a part hereof are true, authentic, and correct copies of the originals, or as appropriate the originals themselves, and no alterations and modifications thereof have been made.
Upon finalizing this transaction, for a period of [INSERT NUMBER] years, the Seller will not directly or indirectly engage in any business competitive with _________________. This covenant shall apply to the geographical area that includes the area within a 100-mile radius of _________________. Directly or indirectly engaging in any competitive business includes, but is not limited to: (i) engaging in a business as owner, partner, or agent, (ii) becoming an employee of any third party that is engaged in such business, (iii) becoming interested directly or indirectly in any such business, or (iv) soliciting any customer or current Executive or Employee of [INSERT BUSINESS NAME] for the benefit of a third party that is engaged in such business. The parties agree that this non-compete provision will not adversely affect [INSERT SELLER’S NAME]'s livelihood.
The lease currently operative on the premises, if applicable, is in good standing and all payments required to be made under the lease have been made by Seller. All rent averages, rent, maintenance and other expenses relating to the lease including any real property tax obligations and insurance obligations up to occupancy by Buyer are the responsibility of Seller.
Seller will pay any and all fees charged by the Landlord for processing any assignment of the lease to Buyer.
No Other Representations or Warranties; Disclosed Materials
Seller makes no other express or implied representations of warranty with respect to Seller, and Seller disclaims any other representations or warranties not contained in this Agreement, whether made by Seller, any affiliate of Seller, or any of their respective officers, directors, managers, partners, employees or agents.
C. Representations and Warranties by both Buyer and Seller
Buyer makes the following representations and warranties as of Closing and as of the date hereof.
Buyer and Seller hereby represent and warrant that there has been no act or omission by Buyer or Seller which would give rise to any valid claim against any of the parties hereto for a brokerage commission, finder's fee, or other like payment in connection with the transactions contemplated hereby.
Buyer shall have as of Closing, sufficient funds with which to pay the Closing Amount and consummate the transaction and, following Closing, Buyer will have sufficient funds to pay any adjustments to the Purchase Price and meet its other payment obligations under this Agreement.
Payment of Costs and Expenses
Except as expressly provided to the contrary in this Agreement, each party shall pay all of its own costs and expenses incurred with respect to the negotiation, execution and delivery of this Agreement and the exhibits hereto.
There is no action, suit, proceeding, claim or investigation by any person, entity, or governmental entity pending or, to Buyer's knowledge, threatened against it before any governmental entity that impedes or is likely to impede its ability to consummate the transaction and to assume the liabilities to be assumed by it under this Agreement.
Buyer shall indemnify and hold Seller harmless from any and all liabilities and obligations arising from Buyer's operation of the business after the Closing. Similarly, Seller shall indemnify and hold Buyer harmless from any and all liabilities and obligations arising from Seller's operation of the business prior to the Closing.
After execution of this Agreement by the parties, if either party fails to perform its respective obligations, or breaches a warranty or covenant, that would constitute a default. The defaulting party shall cure the default within [INSERT NUMBER] days of notice by the other party. In the event of a failure to cure such default by either party within the stipulated time, Seller or Buyer shall have the right to cancel this transaction and/or sue for damages in addition to any other relief provided under this Agreement. In a suit for default, the prevailing party shall recover reasonable attorney fees.
Survival of Representations and Warranties
Each of the parties to this Agreement covenants and agrees that their respective representations, warranties, covenants, statements, and agreements contained in this Agreement shall survive the Closing Date. Except the exhibits hereto or the documents and papers delivered by Seller to Buyer in connection with the Agreement herewith, there are no other agreements, representations, warranties, or covenants by or among the parties hereto with respect to the subject matter hereof.
Buyer acknowledges that it is an experienced and knowledgeable investor in [INSERT TYPE/NATURE OF INDUSTRY], and is aware of the risks.
Both Seller and Buyer agrees to cooperate fully with each other and to execute such further instruments, documents and agreements and to give such further written assurances, as may be reasonably requested by the parties, to better evidence and consummate the transactions described herein and contemplated hereby, and to carry into effect the intents and purposes of this Agreement.
There are no bankruptcy, reorganization or arrangement proceedings pending, being contemplated by or to such Buyer's knowledge threatened against such Buyer or any affiliate of such Buyer.
Both Seller and Buyer shall not divulge, communicate, or use to the detriment of the other or for the benefit of any other person or persons, or misuse in any way, any of Seller's confidential information discovered by or disclosed to Seller or Buyer as a result of the delivery, execution or performance of this Agreement.
No Investment Company
Buyer is not (a) an investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, or (b) subject in any respect to the provisions of that Act.
D. Transactions Prior to Closing
Conduct of Seller's Business until Closing
Except as Buyer may otherwise consent in writing prior to the Closing Date, Seller will not enter into any transaction, take any action, or fail to take any action which would result in or could reasonably be expected to result in or cause any of the representations and warranties of Seller contained in this Agreement to be void, invalid, or false on the Closing Date.
Seller shall deliver to Buyer prior to the Closing Date such resignations of officers or employees of the business as Buyer shall indicate, and each such resignation to be effective on the Closing Date.
Seller shall deliver to Buyer on the Closing Date a satisfaction of any encumbrance or lien on the business property, satisfactory in form and substance to the Buyer, indicating that the then outstanding unpaid principal balance of any promissory note secured thereby has been paid in full prior to or simultaneously with the closing.
Advice of Changes
Between the date hereof and the Closing Date, Seller will promptly advise Buyer in writing of any fact which, if existing or known at the date hereof, would have been required to be set forth herein or disclosed pursuant to this Agreement.
Seller shall deliver to Buyer at closing such documents which are in Buyer's sole discretion and necessary to fully satisfy the objectives of this Agreement in content and form.
E. General Provisions
No action taken pursuant to this Agreement including any investigation by or on behalf of any party shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein or therein and in any documents delivered in connection herewith or therewith. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.
No Third-Party Beneficiaries
Except as otherwise provided, nothing in this Agreement shall provide any benefit to any third party or entitle any third party to any claim, cause of action, remedy, or right of any kind, it being the intent of the Parties that this Agreement shall not be construed as a third-party beneficiary contract.
All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered or mailed, first class mail, postage prepaid to Seller, Buyer, or to such other address as such party shall have specified by notice in writing to the other party.
Sections and Other Headings
The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretations of this Agreement.
Governing Law; Venue
This agreement and all transactions contemplated hereby shall be governed by and construed and enforced in accordance with the laws of [INSERT STATE / COUNTRY].
The parties will attempt to resolve any dispute arising out of or relating to this Agreement through friendly negotiations amongst the parties. If the matter is not resolved through negotiation, the parties will resolve the dispute using the below Alternative Dispute Resolution (ADR) procedure.
Any controversies or disputes arising out of or relating to this Agreement will be resolved by binding arbitration under the rules of the American Arbitration Association. The arbitrator's award will be final, and judgment may be entered upon it by any court having proper jurisdiction.
If the obligations and responsibility of either party are not fulfilled by the appropriate dates thereof, then this Agreement shall be deemed null and void and any deposits paid at said time shall be returned to the Buyer forthwith.
Time is of the Essence
Time and timely performance are of the essence in this contract and of the covenants and provisions hereunder.
Successors and Assigns
This Agreement may not be assigned without the prior written consent of the parties hereto. Rights and obligations created by this contract shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. Whenever used, the singular number shall include the plural, the plural the singular, and the use of any gender shall include all genders.
Unless specifically disallowed by law, service of process in any litigation that arise hereunder may be obtained through certified mail, return receipt requested; the parties hereto waiving any and all rights they may have to object to the method by which service was perfected.
To the extent cognizable at law, in the event of breach the parties hereto may obtain injunctive relief in addition to any and all other remedies available thereto regardless of whether the injured party can demonstrate that no adequate remedy exists at law.
This Contract contains the entire agreement of the parties, and there are no other promises or conditions in any other agreement whether oral or written concerning the subject matter of this Contract. This Contract supersedes any prior written or oral agreements between the parties.
If any provision of this Contract will be held to be invalid or unenforceable for any reason, the remaining provisions will continue to be valid and enforceable. If a court finds that any provision of this Contract is invalid or unenforceable, but that by limiting such provision it would become valid and enforceable, then such provision will be deemed to be written, construed, and enforced as so limited.
This Contract may be modified or amended in writing, if the writing is signed by the party obligated under the amendment.
Initials and Exhibits
This Contract shall not be valid and enforceable unless it is properly executed by Buyer and Seller and their initials affixed to each page of the exhibits attached hereto and made a part hereof.
This Agreement shall be executed on behalf of Mr. John Seller by Ms. Jane Seller, its CEO, and on behalf of Jane E. Buyer by Mr. John Buyer, its CEO.
By [INSERT NAME], its [INSERT TITLE]
By [INSERT NAME], its [INSERT TITLE]
Documents for Review
- Leasehold Agreement(s)
- Financial and Operating Statement(s)
- Sales Tax Return(s)
- Income Tax Return(s)
- Accounts Payable/Receivables Ledger
- [INSERT NAMES OF ANY OTHER DOCUMENTS YOU WANT TO INCLUDE]
For all documents named above the Seller shall provide full and complete records covering the past 3 years.
[INSERT NAME – BUYER]
[INSERT NAME – SELLER]
A Few Comments on the Sole Proprietor Business Sale Agreement
Description of the Business
For a sole-proprietor or partnership, the term "Business" includes all items of property under sale or purchase. The "business” generally includes all assets associated with or relating to the Seller's business establishment including, but not limited to the land, trade name, all leasehold improvements, inventory, fixtures, utility deposits, telephone deposits, any and all other security deposits, goodwill, and any and all other items normally considered and commonly referred to as assets, except those specifically excepted. You can use this section to describe in detail the business property under sale or purchase.
Purchase price refers to the total amount of consideration paid for the business. You can use this section to describe the manner or method of payment of the purchase price, the allocation of purchase price for tax purposes, and the distribution of expenses. For example, the Buyer may pay a portion of the purchase price at the time of execution of the Agreement and may pay the balance amount as agreed to by the parties. For tax purposes, the parties should provide an allocation of the purchase price indicating what portion of the purchase price is paid for major portions of the transactions. It is important that the fair market value be considered when allocating the purchase price.
Common allocations include the following:
- Building or Property
- Fixtures and Equipment
- Goodwill, Tradename and other Tangible Assets
- Leasehold Improvements
- Non-Compete Provisions
- Accounts Receivable
Seller Financing: In some cases, the Buyer may wish to finance a portion, or all, of the purchase price with the Seller. Typically, this would take the form of an installment note, where the company assets are held as collateral and the Buyer signs a promissory note promising to pay the purchase price in increments over time. This type of note also usually bears an appropriate interest rate the parties mutually negotiate.
If Seller financing is contemplated, language should be added to paragraph 2 detailing the basic terms of the financing, and the promissory note should be attached to the agreement.
The Agreement provides that, in addition to any other rights provided by law, a party may terminate the Agreement if the other party has failed to fully perform the obligations under the Agreement. The non-breaching party may provide the party in default with written notice of the breach and state the number of days that the breaching party will have to cure the default. A typical period to cure is thirty (30) days. If the party in default fails to remedy the situation in the specified number of days, the non-breaching party may elect to terminate the Agreement or seek further legal action.
When selling a business, a non-compete provision can help protect the Buyer. Without such a provision in place, the Seller would immediately be free to start a new competing company or assist a competitor. The non-compete provision should be considered reasonable in that it cannot be considered excessive. A court is more likely to enforce the terms of the non-compete provision if its duration is fair and the geographic scope of the provision is reasonable with respect to the Buyer's market area. For example, if the company operated in a limited area or a particular city, then it may be unreasonable to demand a nationwide restriction.
Representations and Warranties
Representations and warranties by both the Seller and the Buyer form an important section of the Agreement. You can use these sections to outline the representations and warranties of the Seller, Buyer, and those made by both the Seller and the Buyer together. Documents that may form the basis for such representations and warranties might be:
- Leasehold Agreements
- Financial Operating Statements
- Sales Tax Returns
- Income Tax Returns
- Accounts Payable / Receivable Ledger
Applicable law refers to the state laws that will govern the agreement. The state selected should have some relevance to either party. For example, the state can be where either business is located or registered.
Alternative Dispute Resolution
Both mediation and arbitration are forms of Alternative Dispute Resolution (ADR) and offer an alternative to going to court. Both involve an unbiased third party (mediator/arbitrator) who helps with negotiations in an effort to come to a resolution.
The main difference between the two is that an arbitrator makes a final and binding decision (just as if a judge had decided on the case), while a mediator structures negotiations in such a way that the parties can come to a compromise and settle the matter with one another.
Because the arbitrator's decision is final and legally binding on the parties, using arbitration means giving up the right to bring the dispute to court, which may or may not be desirable.
On the other hand, mediation provides that the dispute is not settled or concluded until the parties decide that it is. Thus, at any point in the mediation process, either party may decide to call it off and pursue other avenues of resolution (arbitration if provided for in the document, lawsuit, etc.), as long as they have made a good faith effort. Because mediation is more collaborative and less adversarial than arbitration, it is often the preferred option when the parties have a positive relationship that they would like to maintain.
This template was created and commented by Douglas Bean, J.D.