Common Conditions for the Sale and Purchase of an Existing Business
A sale and purchase of an existing business can be mutually beneficial for both the selling and buying parties. Owners sell business so that they can retire or to free up time and money for other ventures. Buyers purchase businesses so that they can have an established business with good will and name recognition.
The first step in purchasing a business is usually a purchase contract. The Seller wants to lock the Buyer if they are going to turn down further offers. The Buyer wants to make sure the business will be theirs before they start to get the necessary documentation together. However, the purchase of a business needs to be made conditional on a few very important occurrences. It will be the job of the Buyer, or their attorney, to make sure the purchase contract contains these conditions and that if the conditions are not met, that the purchase of the business will not be binding.
Some of the common conditions contained in a Sale and Purchase Contract are:
- Condition on Lease of Premises: When one business owner is moving out and another moving in, it will be necessary for the business to make sure the business location will be available to them. Many commercial leases have non-assignment clauses, so a separate lease will need to be executed. This condition can also be modified to include “or other suitable premises” if the Buyer would consider moving the business location.
- Financing: The purchase of a business may require funds that the Buyer does not have immediately available. They may need to seek investors or take out loans. The purchase contract should be made conditional on securing the financing.
- Securing of Suppliers: When purchasing a business that needs to source either raw resources or product, the purchase contract should be made conditional on securing such suppliers, as without them, the business may be essentially worthless.
- Non-Compete: A common condition of purchase is a promise by the Seller not to compete with the buyer. This condition is usually limited in scope by geography or time frame. For example, the Seller won’t compete in the same county for a minimum of 2 years.
- Training: Sometimes, it is necessary for the Seller to stick around and train the Buyer in the operation of the business. The length and degree of training should be clearly identified.
- State Licensing: for many industries, the State the business is located in will have licenses and permits that must be applied for and issued before business can be conducted. If the licenses are not issued, the business cannot operate and may be deemed worthless.
The above conditions are just some of the considerations involved in the purchase of a business. Depending on the business and industry, each condition will be more or less necessary. Sellers and Buyers alike need to seek counsel from a business attorney so they can rest assured that their interests are protected.
At The Law Office of Eugene Glouzgal, we review the business and industry and make sure that the contracted is drafted so that the terms which are important to our client are enforceable. If you are looking to sell or purchase a business, contact us today for a free consultation.