In this capitalist world, constant economic transactions are taking place. One of these important transactions is selling your business. While the sale of your business sounds like a simple enough deal, there is a lot of basics which has to be hammered out in this comprehensive document.
What is the Sale of Business Agreement?
Sale of the business agreement is a legal document drawn up by parties who want to sell and buy Business enterprise. It helps to identify the mutual obligations of the parties and also define their rights and liabilities.
The advantages of drawing up such a document are that the existing contracts of the business for ex.- lease, employees, copyrights etc can be transferred along with the business, or not, depending on the wishes of the parties.
What are the essential clauses in a sale of business agreement?
The clauses one should always keep in mind while making a contract of Sale of Business is the-
- Correct details of the two parties,
- A detailed list of all the assets and
- Continuing liabilities of the existing owners which will be transferred to the buyer and the lump sum amount which the seller is liable to pay.
- A payment schedule detailing the date and amount payable should be specified.
- Non-disclosure- Non-disclosure clause with respect to the existing client database, the know-how of the customers or suppliers and other confidential business dealings not to be disclosed by the Seller.
- Third party claims- Buyer should honour the existing contracts of the Seller and notify the parties which conduct business with the Establishment regarding the change in ownership. All the liabilities of the seller with respect to the third parties should transfer to the buyer and their claims as against the seller fall.
- Arbitration- In case of a dispute, the parties should agree to undertake Arbitration as it is inexpensive, informal and confidential. The procedure for appointing an arbitrator should also be specified in the contract itself.
- Jurisdiction- In case of a legal dispute, the parties might move to court and the jurisdiction to which the case should be taken can also be disputed. Thus, the court of appropriate pecuniary, territorial and subject-matter jurisdiction should be specified in the agreement.
Modes of terminating the contract?
- The need to terminate the contract can be mutual or due to the breach of a condition agreed upon by the parties. It is important that the procedure for termination of the contract is specified in clear terms.
- The parties can mutually terminate the contract by signing a document to the same effect.
- In case of a breach, a notice should be issued specifying the cause of termination. The notice can specify a time period by which the defaulting party has to vacate the premises etc. This notice period helps provide a time for the defaulting party to give a clarification regarding the breach alleged on them or remedy the injury if possible.