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Contract Provisions

CLIENT FOCUSED APPROACH TO CONTRACTS
Considerations in Contracts for the Purchase and Sale of Your Business
In selling or buying a Business ultimately your agreement will be set forth in writing which will define the relationship between the Buyer and Sellers of a business.  Brokers.Law’s Team Approach is designed to evaluate and prioritize what is important in the sale or purchase of your business. 
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Purchase and Sale Contracts

Common Elements & Unique Considerations

Purchase and Sale Contracts have many common elements, Price, terms, assets, employment agreements, real estate, earn outs, representations and many other common elements.  However every purchase and sale is unique in many aspects.  What is important in one contract will be less significant in another.  Businesses in the same industry and in the same geographic area can be markedly different from one another in their makeup, structure and history and the Purchase and Sale Agreement must be tailored to those key differences.

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

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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
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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
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roles-of-business-owner-700x467

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
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roles-of-business-owner-700x467

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

Matters the parties will work on post closing to effect a smooth transition

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

Matters Buyer will Indemnify Seller for Post Closing

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