Need An Agreement For The Sale Of Business?

Selling a business is as difficult as acquiring and setting up of a new one

. Main reason for that is you never know whether you will be compensated justly for your business. Also to convince the buyer of viability of the business success after wards need a lot of convincing to do. This includes negotiation and evaluation of warranties, Employee and third party contractors and lease agreements. A buyer is always looking out for a sensible choice and would like to contemplate on options that are of least hassle for him. This makes a seller even more particular about little Nitti gritty details of his business which he intends to sale. In scenario like these a sale agreement creates a legally binding relationship between a seller and buyer, hence resolving all issue regarding a sale process.

Issues related to Sale process

Following are the key issues need to be resolved in a sale process

Fair price tagging of the commodity on sale.

Risks and warranties.

Undisclosed and disclosed debts and liabilities associated with the business.

Employees and contractor contracts and retention.

Litigations and licenses issues related with the company.

Intellectual property of the business and its ownership issue(whether it is owned by individuals of the company or company itself)

Tax returns.

Indemnities and fall back mechanisms in case sale agreement is breached.

How a sale agreement resolve all these issues

The sales contract is the legally binding document which, once signed, sets out the contract for sale, specifying:

The assets that are sold

The price

The terms of payment

The effective date

The conditions under which the sale will actually be concluded.

A sale agreement helps resolve the above mentioned issues in an amicable manner, as legal aids of both parties formulate a way out that safeguards interest of both parties. After reviewing liabilities and assets of the business a price mechanism is evaluated. These determinants involve the value of debts, employees and third party contractors along with any assets and other liabilities on the business. After careful evaluation of all these determinants and other legal contracts involved in working mechanism of the organization a comprehensive sale agreement is formulated.

How a seller can minimize his risks while selling the business

A seller should limit the duration of the period under which any claim can be brought to a specific period, say one or two years. Hold back considerable amount in an escrow account. Holding money in an escrow account is to allow you to have some certainty that should you need to make a claim there is money to meet it. Sellers will therefore want to have this money released from the escrow account as soon as the period under which any claims can be made is reached, or even on a sliding scale basis in the period leading up to the end of the claim period. But that doesnt mean tie too much money in the account if it is a interest bearing one. And remember you will quite a lot of small breaches in warranties and guaranties after the sale process but try not to be bogged down by them.

What are the contents of a sale agreement?

Following are the key components of a sale agreement

Interpretation

Agreement for Sale

The Purchase Price

Items to be delivered at completion

Completion

Stocks

Debtors

Creditors and Liabilities

Value Added Tax

Warranties by the Seller

Future Activities

The Guarantor

Communications

Miscellaneous Matters

Jurisdiction

Warranties covering

Assets

Stocks

Accounts

Employees

Suppliers and customers

Licenses, consents and passwords

Insurance

Joint ventures and partnerships

Statutory restrictions

Litigation

Sellers activities

Contracts

Defective products and service liabilities

Properties

Leasehold properties

Freehold properties

Intellectual property

Internet domain names

And in order to complete the sale following aspects need to be taken care of:

The buyer's solicitors register the change of ownership and directors at Companies House.

Asset and goodwill deals, the seller deregisters and the buyer registers for VAT.

Financial agreements are put into effect.

Seller - and the buyer should inform and consult affected employees if necessary and be compliant under the Transfer of Undertakings (Protection of Employment) TUPE) regulations.

Buyer and seller work through the task list for the handover.

by: Clark Taylor

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