Why a Sound Business Sale Agreement Is So Important

When buying or selling a business, one of the most crucial elements of the transaction is the business sale agreement. This legally binding contract outlines the terms and conditions of the sale and is essential to ensuring that both parties are clear on their rights and obligations.

Whether you are selling your business or acquiring a new one, having an experienced commercial lawyer involved in drafting, reviewing, or negotiating the business sale agreement is vital to protecting your interests and avoiding costly legal pitfalls.

What is a business sale agreement?

A business sale agreement is a contract between the buyer and the seller of a business that sets out the terms under which the business will be sold.

The agreement typically includes:

• Purchase price and payment terms: The agreed-upon price for the purchase of the business, along with details on how and when payment will be made (e.g., lump sum, instalments, earn-outs).
• Assets and liabilities: A breakdown of which assets (e.g., property, equipment, stock, intellectual property) and liabilities (e.g., outstanding debts, employee entitlements, lease obligations) are included in the sale.
• Representations and warranties: Statements made by the seller regarding the business’s financial health, legal compliance, and the absence of any undisclosed liabilities.
• Covenants and non-compete clauses: Conditions that may include non-compete agreements preventing the seller from starting or operating a competing business within a certain geographic area for a specified period.
• Conditions precedent: The steps or approvals needed before the sale can be completed, such as obtaining consent from creditors, landlords, or regulators.

A carefully drafted business sale agreement, by an experienced commercial lawyer, is crucial to making the transaction go smoothly, reducing the potential for disputes, and ensuring that all parties understand their obligations.

How our experienced team can help with your business sale agreement

At Lewis Kitson Lawyers our team is experienced in commercial and contract law. We can help you draft, review, and negotiate a business sale agreement that ensures both parties are clear on their obligations and conditions of sale.

1. Understanding legal complexities

The process of selling or purchasing a business is complex and involves various areas of law, including contract law, tax law, employment law, and corporate law.

The structure of the business — whether it’s a sole trader, partnership, company, or trust — will affect how the transaction is handled. Our Applecross based team at Lewis Kitson Lawyers can help you navigate these legal complexities and ensure the agreement is compliant with applicable laws.

2. Protecting your interests

A business sale agreement is a legally binding document that governs the terms of the sale and purchase. For both buyers and sellers, it is essential to ensure that the agreement is drafted in a way that protects your interests by an experienced contract lawyer.

For instance, if you’re selling your business, you want to ensure that you are not liable for any issues that arise after the sale is completed. Conversely, if you’re buying a business, you need to ensure that you are not inheriting any hidden liabilities or obligations. We can help ensure the terms are fair, clear, and legally enforceable.

3. Effective negotiation

Business sale transactions often involve intense negotiations over price, payment structure, warranties, and other conditions.

Our experienced team at Lewis Kitson Lawyers can provide valuable support in negotiating the terms that best suit your needs.

For example, if you are purchasing a business, we can help negotiate a lower purchase price based on any potential liabilities or issues identified during due diligence. Similarly, we can help negotiate terms that give you adequate protection against future claims.

4. Tax implications and structuring the deal

The way the business sale agreement is structured has significant tax consequences.

In Australia, business sales can be structured as an asset sale or a share sale (or a combination of both). The tax treatment of each type of sale differs, and a poorly structured deal could lead to unintended tax liabilities.

A commercial lawyer with expertise in business transactions can work alongside you and your accountant to help structure the deal in the most tax-efficient way.

5. Due diligence

Before completing the sale, the buyer typically conducts due diligence to assess the financial and legal standing of the business.

Our experienced team of Perth lawyers can assist in managing this process, ensuring that all necessary documents are prepared, and any red flags or risks are identified early on.

Sellers can also benefit from preparing for due diligence by ensuring their business records, contracts, and obligations are up-to-date and transparent.

6. Employment and employee entitlements

One of the key issues in any business sale agreement is how employee entitlements will be handled. In Australia, employees have certain rights under the Fair Work Act and other industrial relations laws, which must be addressed in the business sale agreement.

For instance, a buyer may assume responsibility for employee entitlements (e.g., leave, superannuation, redundancy pay), or the seller may retain responsibility.

Our experienced lawyers can help ensure compliance with employment laws and negotiate the treatment of employees as part of the sale.

7. Avoiding future disputes

A poorly drafted business sale agreement can lead to disputes long after the transaction is completed. Ambiguous terms, vague clauses, or missed obligations can lead to costly legal battles.

Our experienced lawyers will ensure the agreement is comprehensive and precise, addressing all potential scenarios to prevent misunderstandings and reduce the risk of future litigation.

8. Compliance with Australian regulations

Business transactions in Australia are subject to various regulatory frameworks. We can help guide you through the regulatory approvals process and ensure the transaction complies with applicable laws.

Get legal advice before you sell or buy

Selling or buying a business is a significant financial and legal commitment. A well-drafted business sale agreement is crucial to ensuring that the transaction goes smoothly, complies with Australian law, and protects your interests.

Whether you are the seller or the buyer, engaging an experienced lawyer who specialises in business transactions is essential to ensure the deal is structured correctly and that all aspects of the transaction are legally sound.

At Lewis Kitson Lawyers, we specialise in business sales and acquisitions. We have extensive experience advising clients and guiding them through every step of the process, from negotiating terms and drafting the business sale agreement to managing due diligence and ensuring compliance with applicable laws.

Contact us today to discuss how we can help you achieve a successful business sale or purchase.