When drafting a P&S agreement to buy or sell a business, it is good planning to start with covering several essential and beneficial topics. That will help ensure a fair, legally binding, and comprehensive contract:
- Determine the type of purchase. Ordinarily, small businesses are transferred under an Asset Purchase Agreement. However, some businesses are transferred by transferring the stock held by the seller(s) to the buyer(s).
- Identification of Parties: Clearly identify the buyer(s) and seller(s) involved in the transaction.
- Description of Business: Describe in detail the business being bought or sold, including as applicable, assets, liabilities, and operations.
- Purchase Price and Payment Terms: Stipulate the total purchase price, payment method(s), and schedule.
- Representations and Warranties: Both parties may need to provide assurances about the business and their authority to enter into the Purchase and Sale agreement. [THIS PART IS A MAIN REASON WHY YOU HIRE A LAWYER.]
- Conditions Precedent: Outline any conditions that must be met before the transaction is finalized, such as obtaining financing or regulatory approvals.
- Confidentiality Clause: Protect sensitive business information disclosed during transaction process, in particular, the due diligence phase .
- Non-Compete and Non-Solicitation Provisions and Agreements: Prevent the seller from starting a competing business or poaching clients and employees for a specified period.
- Due Diligence Provisions: Include a specific due diligence clause in the P&S agreement. This clause outlines the buyer’s right to conduct a thorough investigation of the business before finalizing the purchase.
- Dispute Resolution Mechanisms: Define the process for handling any disputes that arise from the agreement.
- Closing and Post-Closing Obligations: Detail the steps and responsibilities of each party at closing and after the transaction is complete.
- Termination Provisions: State conditions, if any, under which the agreement can be terminated before the sale is completed.
- Not always necessary or requested, but If included, a Due Diligence Section clearly sets forth a clear time frame for the due diligence process, specifying the start and end dates; identifies the areas and aspects of the business that the due diligence process will cover, such as financial records, legal documents, business operations, and assets.Grants the buyer access to necessary documents, records, and other relevant information for conducting due diligence.Establishes contingencies Based on Findings: Due Diligence Provisions may include contingencies that allow the buyer to renegotiate or withdraw from the deal based on the findings of the due diligence process.The seller’s representations and warranties in the agreement can be subject to verification during due diligence.Specify any conditions that must be satisfied based on the due diligence findings before the transaction can be completed.
Inclusion of a due diligence provision helps ensure that the buyer is fully informed about the business’s actual state and can make an educated decision, while the seller understands the buyer’s requirements for completing the purchase.
The above elements are critical for assuring a smooth transition and protecting the interests of both parties involved in the transaction.
The buyer and seller naturally have different goals and concerns. At Contract Solutions, you will find the experience and skill to represent business buyers and business sellers
Often the P&S process is preceded by a written offer to purchase the business. The offer may specify: