Contract Provisions
Brokers Law
Contract Provisions
CLIENT FOCUSED APPROACH TO CONTRACTS
Considerations in Contracts for the Purchase and Sale of Your Business
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Purchase and Sale Contracts
Common Elements & Unique Considerations
Examples of how contracts for similar businesses can be different:
Single Owner Multiple Owners
Asset Sale Purchase of Company
Cash Purchase Cash with Bank Debt/Seller Financing
Earn Out Provision Set Price
Real Estate Leased Property
Tax Considerations of Sellers Tax Considerations of Buyers
Brokers.Law evaluates each purchase and sale agreement based on the unique factors involved in the transaction. The sale or purchase of your business requires investigation and analysis of the entire business to determine what elements will be key to your decision making and to ensuring that your needs are met.
Outline of Areas that will be considered during the process of preparing a Contract for the Purchase and Sale of a Business
![roles-of-business-owner-700×467 roles-of-business-owner-700x467](https://brokers.law/wp-content/uploads/elementor/thumbs/roles-of-business-owner-700x467-1-pu551nkv4mwbrx64r5rwkin94drozzwz1vt47x5fvo.jpeg)
Current Ownership of Business
- Who are the current owners of the Business
- Single Owner vs. Multiple Owners
- Do they have the authority to sell the Business
- What third Party or Outside Approvals may be required
- Who is negotiating for the Sellers-single person or multiple parties
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Price the Business is being sold for
- How is the price being determined
- Multiple of Sales
- Gross Sale v. Net Sales
- Multiple of Earnings
- Earnings Before Interest Taxes Depreciation Amortization
- Net Income
- Multiple plus Value of Assets being Transferred
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Earn Out as a Component of Purchase Price
- Earn Out is additional Consideration to Buyer based
on the Results of the Business for a Specified Period
of Time after the Closing
Example: $3,000,000 plus 10% of Gross Sales over $900,000 during Year 1 and 5% of Gross Sales over $1,000,00 during year 2 - Earn out as a Hold back to Purchase Price
- Earn out as incentive to Performance
![roles-of-business-owner-700×467 roles-of-business-owner-700x467](https://brokers.law/wp-content/uploads/elementor/thumbs/roles-of-business-owner-700x467-1-pu551nkv4mwbrx64r5rwkin94drozzwz1vt47x5fvo.jpeg)
How is the Purchase Price Being Paid
- Cash at Closing
- Cash plus Bank Financing
- Cash plus Owner Financing
- Cash plus Earn Out
- Cash with Hold Back Percentage
- Stock in acquiring Company
How is the Purchase Price Being Paid
- Cash at Closing
- Cash plus Bank Financing
- Cash plus Owner Financing
- Cash plus Earn Out
- Cash with Hold Back Percentage
- Stock in acquiring Company
![roles-of-business-owner-700×467 roles-of-business-owner-700x467](https://brokers.law/wp-content/uploads/elementor/thumbs/roles-of-business-owner-700x467-1-pu551nkv4mwbrx64r5rwkin94drozzwz1vt47x5fvo.jpeg)
![roles-of-business-owner-700×467 roles-of-business-owner-700x467](https://brokers.law/wp-content/uploads/elementor/thumbs/roles-of-business-owner-700x467-1-pu551nkv4mwbrx64r5rwkin94drozzwz1vt47x5fvo.jpeg)
Asset Sale vs. Stock Sale (Purchase of Existing Corporate Entity)
- Most Purchases are Asset Sales
- Asset Sale is the Purchase of the Company Assets
- Accounts, Relationships, Contracts, Real Estate
- Generally does not include liabilitie
- More definite cut off of liabilities
- Purchaser starts a new company
- Stock Sale is the purchase of the existing entity
- Purchaser buys the stock of the Seller in existing entity
- Existing Company Continues in Existence
- More Complicated Tax Considerations
- Liabilities of Existing Company Continue
- Seller indemnifications more detailed
What Assets are Being Transferred
- Real Estate
- Rights under Leases
- Customer Contracts
- Customer Accounts
- Vendor Contracts
- Employee Agreements
- Non Disclosure Agreements
- Non Compete Agreements
- Bank Accounts
- Inventory
- Accounts Receivable
- Notes Receivable
- Permits and Governmental Authorizations
- Tangible Personal Property (Office Equipment)
- Vehicles
- Insurance Policies
- Intellectual Property
- Patents, Trademarks, Trade Secrets, Customer Lists
- Franchise Rights
- Equity Interests
- Goodwill of the Company
![roles-of-business-owner-700×467 roles-of-business-owner-700x467](https://brokers.law/wp-content/uploads/elementor/thumbs/roles-of-business-owner-700x467-1-pu551nkv4mwbrx64r5rwkin94drozzwz1vt47x5fvo.jpeg)
![roles-of-business-owner-700×467 roles-of-business-owner-700x467](https://brokers.law/wp-content/uploads/elementor/thumbs/roles-of-business-owner-700x467-1-pu551nkv4mwbrx64r5rwkin94drozzwz1vt47x5fvo.jpeg)
What Liabilities are Being Assumed
- Debts
- Loans
- Credit Lines
- Mortgages
- Customer Accounts (Chargebacks, Indemnifications)
- Employee Agreements & Contracts
- Trade Payables and Debts
- Pension Liabilities
- Cobra Insurance Liabilities
- Insurance Contracts
- Accrued Expenses
- Employee Benefit Plans
- Franchise Agreements
Employee Relations
- Existing Contracts
- Union Issues if Applicable
- Independent Contractors v. Employees
- Employee Leasing Services
- Non-Compete & Non Solicitation Agreements
- Employee Benefit Plans
Insurance Policies
- Employee Related
- Health, Workers Compensation, Unemployment
- Property & Casualty
- General Liability
- Claims History
- Key Man Insurance
- Errors & Omission Insurance
Seller Transition Agreement
- Is Seller being retained to effectuate a Transition to Buyer
- Rights and Responsibilities during Transition
- Compensation for Transition Period
Prorations at Closing
- Taxes
- Rent
- Salaries & Bonus Plans
- Utilities
- Mechanism for settling up
Further Assurance Agreement
Seller Representations
- Representations to Buyer as to Certain Matters
- Financial Statements
- Asset Ownership
- Liabilities
- Litigation
- Undisclosed Liabilities
- Absence of Changes during Contract Period
Buyer Indemnifications
Seller Indemnifications
- Matters Seller will indemnify Buyer for Post Closing
- Often includes Purchase Price Holdback for period
- Can include extended coverage Insurance purchased
Claims Procedure for Indemnifications
- Minimum Threshold for Claims
- Notification Process
- Who handles Claims (Buyer or Seller)
- Set-off Rights (Claims set off against Holdback)
Confidentiality of Agreement
- During Due Diligence
- Process for Due Diligence
- Control of Notification of Purchase
Dispute Resolution
- Cooperative between Parties
- Mediation
- Arbitration
- Litigation
Other Considerations
- Allocation of Purchase Price for Tax Purposes
- Documents to be Executed by Seller at Closing
- Documents to be Executed by Buyer at Closing
- Governing Law