I am selling a trade business – what needs to go in the contract?

Selling a trade business involves not only the transfer of tools and equipment but also ongoing contracts and goodwill.

If you’re selling your trade business, your Sale of Business Agreement needs to address the most critical issues both leading up to the sale, during the transfer of ownership, and after ownership has passed.

What are the key issues when selling a trade business?

• Goodwill and restraint – Goodwill often makes up a significant component of the sale price in trade business, and, accordingly, it is commonplace to have a binding restraint clause to preserve the value of that goodwill. In drafting such a clause, it is necessary to strike a balance between the interests of both vendor and purchaser.
• Ongoing contracts – Often, such businesses have ongoing supply contracts with numerous third parties. The mechanism for transfer or assignment of same should be clearly spelled out in the Sale of Business Agreement.
• Indemnities and releases – It is not ideal to have any liability for the activities of a business that you have already sold. As such, it’s worth having your lawyer insert specific indemnities and releases into the Sale of Business Agreement to protect both parties.
• Employees – The transfer of employees often results in an adjustment at settlement (for outstanding entitlements). Some things to consider include the method for communicating whether or not an employee will form part of the terms of the sale and the terms upon which the purchaser may maintain or discontinue ongoing employment
• Workmanship – Sometimes, a guarantee of existing workmanship is required to be operative during the exchange and at settlement. Such a clause should drafted with care and accuracy.
• Equipment schedules – A tradesperson needs his tools! In selling a trade business, it is not uncommon for the assets and tools of that business to be transferred at completion. These items are included in an equipment schedule that annexes to the Sale of Business Agreement. This annexure is often used as a checklist at completion to ensure the purchaser gets what they paid for.

Conclusion

When selling a trade business, it is never a good idea to blindly agree to the terms and conditions of the Sale of Business Agreement of which you are the vendor. For a fixed-fee quote and obligation-free assessment of your contract, get in touch today. LegalVision has a team of highly qualified business lawyers who would be more than happy to take a look at your contract and assess your legal needs.