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5 Things You Need to Know About Business Sale and Purchase

  • 1Buying or selling a business is a significant decision. Whether you’re a seller (a “vendor”) or a buyer (a “purchaser”), it’s important that you protect your interests — before, during and after a transaction.
  • 2One of the first steps in the business purchase journey is due diligence. Due diligence is the process of investigating the business and its operations to give you more information about what you are purchasing. A business lawyer can assist during the due diligence phase of a business purchase. For instance, if you are purchasing a business that has many clients, you will need a lawyer to check that contracts are in place with each customer and that those contracts cannot easily be terminated.
  • 3In general, the vendor will be responsible for preparing a sale of business agreement. The purchaser will then review the agreement and suggest amendments. After that, the parties will negotiate until they reach an agreement that suits both of them. It is a good idea to use a specialist lawyer to help you with drafting, reviewing and negotiating the sale of business agreement.
  • 4For the sale of smaller businesses, it is common to use a standard form sale of business contract. However, many buyers and sellers add special conditions to the contract that set out particular terms for their transaction. If you are selling a more complex or higher-value business, your lawyer might prepare a bespoke contract. The key terms in a sale of business agreement cover: (i) the subject matter of the transaction (what assets are included in the sale); (ii) the price; (iii) when the buyer will need to pay the seller; (iv) what liabilities each party will take on and what protections will apply if the business is not a success after the deal is finished; and (v) non-compete obligations.
  • 5A non-compete clause is a type of restrictive covenant: a term of a contract that has the effect of limiting the commercial activities of a person or business. In the context of a business sale, a buyer will want to ensure that the seller cannot set up a new business to compete with the old business after the sale has been finalised. To be enforceable, a non-compete clause must be reasonable to protect the interests of the buyer. It’s a good idea to seek the advice of an experienced lawyer, who can help draft a clause that strikes the right balance for your transaction.