5 Clauses that should be in a business sale contract

A business sale contract is the main legally-binding document involved in selling a business. The business seller usually prepares the contract for sale which sets out terms relating the aspects of a sale like the sale price, dispute resolution processes, and what assets are included.

A great business sale contract will ensure that both the buyer and the seller have all their negotiated interests, rights and obligations represented. It should also provide clear steps for resolving all types of potential disputes. This aspect of the contract significantly helps to reduce the likelihood of messy litigation down the line. So, while every business sale is unique, all business sale contracts should include these five key clauses:

1. Parties

You need to include the names and or company names and details of the seller and buyer involved in the business sale.

2. Sale price

Negotiating the value of different assets when coming up with a sale price is common and engaging a valuation expert can be a huge help. The final, agreed purchase price will be based on the unique business assets listed which usually fall into two key categories:

1. Goodwill

These are the intangible assets of a business, including things like a business’ reputation, location, brand identity and customer list.

2. Physical Assets

These are the tangible assets of a business, including things like stock, equipment, machinery, vehicles, and real property.

3. List of assets

Once values have been negotiated, a list of every essential business asset should be included in the business sale contract. Some of the most common assets included in a business sale contract include: 

• customer and supplier contracts;
• equipment;
• inventory;
• real estate;
• business name/s;
• websites;
• various business technologies;
• intellectual property (IP);
• business records; and even
• staff.

4. Warranties and representations

Warranties and representations in a business sale contract are designed to protect both parties from each other’s conduct, particularly relating to the accuracy of things like financial records and the legal business structure.

5. Business protection

Non-compete, confidentiality and guarantee clauses help to prevent a seller from starting a competing business, disclosing sensitive information to third parties and making false claims and representations without legal consequences.

A well-structured business sale contract is essential for a smooth and legally sound transaction in Sydney. Engaging a business-savvy legal professional with experience in business sales to draft and/or review the contract will ensure that the interests of both the buyer and the seller are protected now and into the future.

If you need help drafting or reviewing a business sale contract, our experienced business sale lawyers are here for you. Get in touch with us today.