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Why You Should Work With a Lawyer When Drafting a Business Sale Agreement

Purchasing a business involves various risks. When purchasing a business, parties will often choose to use a business sale agreement. This agreement is a legally binding agreement between the buyer and the seller. If a lawyer does not prepare the business sale agreement, there may be some terms that are uncertain, unreasonable or simply left out of the agreement. This might lead to unfavourable outcomes for your business. This article will discuss why it is essential that you engage a lawyer to draft a suitable business sale agreement.

What Are Uncertain Terms?

A poorly drafted business sale agreement can contain uncertain terms that need more clarity. In contract law, an agreement that contains uncertain terms might not be enforceable. This is on the basis that the courts cannot enforce an agreement if the parties’ obligations cannot be precisely identified. Consider how much is at stake when selling your business. Therefore, it is important that your business sale agreement contains both clear and specific terms.

An experienced lawyer with a trained eye for identifying ambiguities can help ensure that your agreement is certain. For example, a lawyer can advise you on the wording that should be included in the agreement. This can ensure that it clearly states who is responsible for meeting an obligation and by what time frame. 

In this sense, by having a lawyer draft your business sale agreement, you can ensure that it is enforceable if the buyer wishes to fall back on their contractual promises.

Unreasonable Restraints 

In many business sale agreements, it is common for buyers to want to place you under certain post-completion conditions. These conditions typically prevent you from taking your expertise to a competing business immediately after you sell your business. However, including an unreasonable restraint on your post-completion activities will likely place you in an unfair situation.

To avoid being committed to an unreasonable restraint, a lawyer can help draft an agreement that reflects a fair outcome for both parties involved. 

For example, if you were the key manager of the business you are selling, the buyer might argue for a more extended restraint period to provide some protection for the business’s goodwill. On the other hand, if the business you are selling has no long-term customers and operates within a small geographical area, it might be fairer to impose a shorter restraint period since the new buyer might only need limited time to protect the business’s goodwill.

In any event, a lawyer can identify any unreasonable restraints the buyer seeks to include in the agreement. Further, they can advise you on what terms might suit both parties in the transaction.

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What Are Missing Terms? 

In almost every business sale agreement, you will find specific conditions that you and the buyer must fulfil before the sale can go ahead. These conditions are often referred to as ‘conditions precedent.’ When it comes to a business sale agreement, the conditions precedent really depend on what is essential for the operation of the business and the transaction to proceed. For example, a condition precedent might require that: 

  • the buyer obtains finance to pay the agreed purchase price; and
  • that key employees of the business accept the buyer’s offer of employment.

Likewise, a condition precedent might require you as a seller to obtain the landlord’s consent to the assignment of the lease for the business premises to the buyer. 

Ultimately, it can be easy to overlook a condition precedent that might be essential to the sale in your commercial context. By having an experienced lawyer help draft your business sale agreement, they can alert you to any conditions that should be included in the agreement. This is especially the case in the instance where the consent of a third party is required to transfer a business contract. If you do not include it as a condition precedent to obtain that consent and transfer that contract anyway, you might be in breach of that contract. A lawyer can tailor the agreement to your circumstances to achieve your desired outcome when selling your business. 

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Key Takeaways

When drafting your business sale agreement, a lawyer can help:

  • ensure there are no ambiguous terms in the agreement;
  • identify any unreasonable restraints on your post-completion conduct and amend them; and
  • include any missing terms, such as conditions precedent, that are essential to the completion of the sale.

If you need a lawyer to draft your business sale agreement, our experienced sale of business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What is due diligence? 

Before you sell your business, a buyer might request to see your business’s financial statements, sales records, customer contracts and other documents relevant to the operation of the business. This is so the buyer can verify the information you have provided to them about the business and assess whether the purchase price you are asking for is reasonable and whether there are any risks in the business that they need to be aware of. This will help them decide whether to proceed with the transaction. This process is referred to as ‘due diligence’.

What are the conditions precedent?

Conditions precedent are a set of tasks or obligations included in a business sale agreement that the buyer and seller must complete (or waive) for the sale to go ahead. They are essential requirements of a transaction.

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George Raptis

George Raptis

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