Quick Summary
A business sale contract establishes the terms, responsibilities, and conditions of a transaction between the buyer and seller. Key provisions commonly address the purchase price, assets, liabilities, restrictive covenants, seller transition services, representations and warranties, due diligence, closing conditions, post-closing obligations, and tax considerations. Each agreement should reflect the specific business and transaction structure rather than rely on generic template language. Buyers and sellers can use a clause checklist to identify topics for discussion, while qualified legal and tax professionals can draft or review provisions for the transaction.
Selling a business is one of the most significant transactions an entrepreneur will ever make. It’s a complex process that requires careful planning and precise documentation.
One of the most important documents in this process is the contract, which serves as the official agreement between the seller and the buyer. The agreement may address the purchase price, assets, liabilities, representations and warranties, due diligence, closing conditions, and post-closing obligations.
This guide explains key clauses commonly addressed in a business sale agreement and includes illustrative sample language to help buyers and sellers understand what each provision may cover.
The Importance of a Well-Structured Selling a Business Contract
When it comes to business sales, the importance of having a legally binding contract cannot be overstated. It outlines the agreed-upon terms and provides a framework for resolving disputes and ensuring that both parties fulfill their obligations. Without a solid contract, the risk of misunderstandings, disagreements, and even legal issues increases significantly.
A business sale agreement should be tailored to the transaction rather than copied from a generic template. The appropriate provisions can vary based on the type of business, transaction structure, assets and liabilities involved, financing arrangements, and applicable law.
While you might find a sample contract for selling a business online, sample language should be treated as a starting point rather than a finished legal agreement. An M&A advisor or business broker can help organize transaction details, while an attorney should review and draft legal provisions for the specific deal.
Questions about transferring existing customer, supplier, lease, or other business contracts are addressed separately in our guide to what happens to contracts when a business is sold.
Key Clauses to Include in a Business Sale Agreement
When writing a contract for selling a business, including certain clauses will ensure that both parties are on the same page. These clauses define the terms of the transaction, the responsibilities of each party, and how the deal will be structured.
Sale Price and Payment Terms
The most fundamental clause in any business sale contract is the sale price. This should be clearly defined, along with the agreed-upon payment terms.
Will the buyer pay the entire amount upfront, or will the payment be made in installments? If the sale is structured in installments, the contract should specify how much will be paid at closing, any interest on deferred payments, and when the remaining balance is due.
It is also important to address adjustments to the purchase price. For example, if the transaction includes a working capital adjustment or another agreed adjustment mechanism, the contract should explain how it will be calculated.
Illustrative sample clause:
Purchase Price. The purchase price for the Business shall be $[amount], payable as follows: $[amount] at Closing and the remaining $[amount] pursuant to the payment schedule set forth in this Agreement. Any purchase price adjustment shall be calculated in accordance with the methodology described in Exhibit [X].
The actual payment structure and adjustment language should be drafted for the specific transaction and reviewed by legal and financial professionals.
Assets Included in the Sale
Next, the contract should list all the assets being transferred to the buyer. This can include physical assets like inventory, equipment, and property, as well as intangible assets like intellectual property, trademarks, and goodwill.
The agreement should also identify excluded assets rather than leaving the buyer and seller to interpret what is included.
Illustrative sample clause:
Purchased Assets. At Closing, Seller shall transfer to Buyer all of Seller’s right, title, and interest in the assets identified on Schedule [X], including the equipment, inventory, intellectual property, goodwill, and other assets specifically listed therein, excluding the assets identified as Excluded Assets on Schedule [Y].
Liabilities and Debts
This clause outlines which liabilities the buyer will assume and which ones the seller will retain. The contract should clarify whether the buyer will take on any outstanding loans, leases, or other financial obligations. If the business has existing debts that the buyer won’t assume, the contract should outline how the seller will settle those debts before or after the sale.
Illustrative sample clause:
Assumed and Retained Liabilities. Buyer shall assume only those liabilities expressly identified as Assumed Liabilities on Schedule [X]. Seller shall retain and remain responsible for all liabilities other than the Assumed Liabilities, including the liabilities identified as Retained Liabilities on Schedule [Y].
The schedules should be specific enough to reduce uncertainty about which obligations are included in the transaction.
Non-Compete and Non-Solicitation Agreements
To protect the buyer’s investment after the sale, the agreement may include non-compete and non-solicitation provisions. A non-compete provision may restrict certain competitive activities by the seller, while a non-solicitation provision may address solicitation of customers, employees, vendors, or other business relationships.
These provisions are subject to applicable law, which can vary by jurisdiction and circumstance. Their scope, duration, and geographic limitations should be reviewed by an attorney before inclusion in a final agreement.
Illustrative sample clause:
Restrictive Covenants. Subject to applicable law, Seller agrees that for a period of [period] following Closing, Seller shall not engage in the activities described in Exhibit [X] within the geographic area specified therein, nor knowingly solicit the customers or employees identified under the restrictions set forth in this Agreement.
Transition Period and Seller’s Involvement
In many business sales, the seller may remain involved for a certain period to help with the transition. This could involve training the new owner, introducing them to key clients, transferring operational knowledge, or providing consulting services.
The contract should outline the seller’s responsibilities during this period, including the duration of involvement and any compensation or fees.
Illustrative sample clause:
Transition Assistance. For a period of [period] following Closing, Seller shall make themselves reasonably available for up to [number] hours per [week/month] to assist Buyer with the transition of business operations, including introductions to key customers and suppliers and training concerning the Business’s ordinary operating procedures. Any compensation for such services shall be as stated in Exhibit [X].
Representations and Warranties
Representations and warranties address statements that the parties make about the business and transaction. The seller may make representations concerning financial records, ownership of assets, authority to enter the agreement, taxes, litigation, employees, and other material matters.
The buyer may also make representations concerning its authority to enter into the transaction and its ability to complete the purchase.
Illustrative sample clause:
Seller’s Representations. Seller represents and warrants, subject to the disclosures set forth on the applicable disclosure schedules, that Seller has the authority to enter into this Agreement and that the financial statements delivered to Buyer have been prepared in accordance with the accounting principles specified in this Agreement.
The representations and warranties should correspond to the facts and risks of the particular business.
Due Diligence and Disclosure
During due diligence, the buyer will typically request access to documents and records related to the business. The contract should establish the buyer’s rights and the seller’s disclosure obligations where appropriate.
Records may include financial statements, tax returns, employee information, customer and supplier agreements, licenses, leases, intellectual property records, and other business documents.
Illustrative sample clause:
Due Diligence. Prior to Closing, Seller shall make the books, records, contracts, financial information, and other materials identified in Schedule [X] reasonably available to Buyer for review, subject to the confidentiality and access procedures set forth in this Agreement.
The agreement should be coordinated with the confidentiality arrangements and due-diligence process used for the transaction.
Closing Conditions and Procedures
Before the business sale can be finalized, certain closing conditions must be met. These may include required approvals, third-party consents, financing conditions, delivery of specified documents, and other requirements agreed upon by the parties.
The contract should also specify the closing date and procedures for completing the transaction.
Illustrative sample clause:
Conditions to Closing. The obligations of the parties to consummate the transactions contemplated by this Agreement shall be subject to satisfaction or written waiver of the conditions listed in Section [X], including delivery of the required closing documents, receipt of specified approvals, and satisfaction of the conditions expressly identified in this Agreement.
Questions about assigning existing business contracts should be addressed separately through the applicable agreement and transaction process. See what happens to contracts when a business is sold for more information.
Post-Closing Obligations
A business sale does not necessarily end all obligations when the transaction closes. Depending on the deal, the seller may need to provide transition assistance, deliver additional records, cooperate with certain administrative matters, or satisfy other obligations that survive closing.
Illustrative sample clause:
Post-Closing Cooperation. Following Closing, each party shall reasonably cooperate with the other in connection with matters relating to the transactions contemplated by this Agreement, including the execution of documents and delivery of records reasonably necessary to complete obligations that expressly survive Closing.
Tax Implications
When drafting a business sale contract, the parties should also consider the tax treatment of the transaction. The tax consequences can depend on factors such as whether the transaction is structured as an asset sale or equity sale, how the purchase price is allocated, and the circumstances of the seller and buyer.
Many owners ask, “Is selling a business considered capital gains?” The answer depends on the assets sold, transaction structure, applicable tax rules, and other facts. The purchase agreement may also address how the purchase price is allocated among the assets.
Illustrative sample clause:
Allocation of Purchase Price. Buyer and Seller shall allocate the Purchase Price among the Purchased Assets in accordance with the allocation schedule attached as Schedule [X], and each party shall file all tax returns and required tax forms in a manner consistent with that allocation, unless otherwise required by applicable law.
Tax provisions should be reviewed with a qualified tax professional rather than relying on a general contract template.
Downloadable Business Sale Contract Clause Checklist
Before drafting or reviewing a business sale agreement, use our Business Sale Contract Clause Checklist to identify the major provisions that may need attention. The checklist covers the purchase price, assets, liabilities, restrictive covenants, transition assistance, representations and warranties, due diligence, closing conditions, and post-closing obligations.
The checklist is intended as a planning resource. It does not replace a customized purchase agreement or legal, tax, or financial advice.
| Clause | What to confirm | Done |
|---|---|---|
| Purchase price and payment terms | Price, amount due at closing, deferred payments, interest and any adjustment method | |
| Assets included and excluded | Asset schedules list equipment, inventory, intellectual property, goodwill and excluded assets | |
| Liabilities and debts | Assumed and retained liabilities are listed on separate schedules | |
| Non-compete and non-solicitation | Scope, duration and geography reviewed by an attorney under applicable law | |
| Transition period | Seller hours, duration, duties and any compensation | |
| Representations and warranties | Statements match the business facts and the disclosure schedules | |
| Due diligence and disclosure | Records to be provided, access procedures and confidentiality terms | |
| Closing conditions | Approvals, consents, financing conditions, closing documents and closing date | |
| Post-closing obligations | Obligations that survive closing and cooperation duties | |
| Tax treatment | Purchase price allocation and tax filings reviewed with a tax professional |
Protecting Your Interests with a Strong Business Sale Contract
Writing a solid contract for selling a business establishes the terms of the transaction and gives both parties a clear framework for completing the deal. The right provisions depend on the business, transaction structure, assets and liabilities involved, and the agreements reached by the buyer and seller.
An experienced M&A advisor or business broker can help organize transaction details and identify issues that need to be addressed. An attorney should draft or review the legal agreement and advise the parties about enforceability and applicable law.
Strategic Business Brokers Group guides business owners through the intricacies of selling their business. If you are considering buying a business, you can also learn more about buying a business and the transaction process.
Contact us today to discuss your business sale and learn more about our services.
