Contract of Sale of Business – Considerations for Seller and Buyer
27/12/11 18:14 Filed in: Business Purchase
A business is transacted with a document known as a Contract of Sale of Business. The Contract is what ensures you have a legally binding arrangement with the other party. Therefore, the provisions of the Contract will determine to what extent the parties are obligated to each other, so each party should appreciate the value of legal advice upfront.
My name is Glenn Duker and I am lawyer who practises in the area of business acquisitions and dispositions. This article will discuss three matters which are common to most business sale contracts, namely: operating the business until settlement, how to handle stock on hand, and the settlement itself.
1. Operating the Business Until Settlement
The business goodwill must be kept intact by the vendor until settlement has been effected. This will include running the business competently, so as to ensure that the purchaser gets what they bargained for, namely that customers continue to flow into the business and that the overall profitability is maintained as best as possible. The vendor will also typically introduce the purchaser to the suppliers of the business and any major customers, particularly where rapport is relevant to the business relationship.
2. How to Handle Stock on Hand
It is customary for a stock take to be carried out jointly by the parties (or by appointed professionals) on, or just prior to, the day of settlement. It is not unusual to have some items excluded from the stock take, as the purchaser may not require such items. Sometimes a maximum stock value is nominated in the Contract. Whatever the agreement, the value of the stock will usually be added to the purchase price.
3. Settlement
The parties must do all things necessary to ensure that upon payment of the residue of the purchase price such things as (where applicable) the plant and equipment, the business name, the franchise, liquor licence and any other assets of the business are transferred.
Buying a business is a major decision. Getting the Contract right, whether you are purchasing or selling is important, and thus legal advice from a lawyer as Glenn Duker is critical.
My name is Glenn Duker and I am lawyer who practises in the area of business acquisitions and dispositions. This article will discuss three matters which are common to most business sale contracts, namely: operating the business until settlement, how to handle stock on hand, and the settlement itself.
1. Operating the Business Until Settlement
The business goodwill must be kept intact by the vendor until settlement has been effected. This will include running the business competently, so as to ensure that the purchaser gets what they bargained for, namely that customers continue to flow into the business and that the overall profitability is maintained as best as possible. The vendor will also typically introduce the purchaser to the suppliers of the business and any major customers, particularly where rapport is relevant to the business relationship.
2. How to Handle Stock on Hand
It is customary for a stock take to be carried out jointly by the parties (or by appointed professionals) on, or just prior to, the day of settlement. It is not unusual to have some items excluded from the stock take, as the purchaser may not require such items. Sometimes a maximum stock value is nominated in the Contract. Whatever the agreement, the value of the stock will usually be added to the purchase price.
3. Settlement
The parties must do all things necessary to ensure that upon payment of the residue of the purchase price such things as (where applicable) the plant and equipment, the business name, the franchise, liquor licence and any other assets of the business are transferred.
Buying a business is a major decision. Getting the Contract right, whether you are purchasing or selling is important, and thus legal advice from a lawyer as Glenn Duker is critical.