Mid Mountains Legal Blog

What should I include in my sale of business contract?

Anthony Steel

Selling your business can be a stressful and complicated process. A well-drafted sale of business contract is key to a smooth transaction. This article outlines some of the considerations for your sale agreement to help you sell your business with ease.

1. What are the commercial details?

Your sale of business contract must clearly set out the commercial details of the transaction. This includes vendor and purchaser details, the purchase price, settlement date, any guarantors, and the assets included within the sale. You should consider whether things like property fixtures or trading stock form part of the sale or remain separate from the transaction.

2. Any conditions to the sale?

If the sale transaction is conditional on certain things, these should be detailed in the contract. For example, the sale may be subject to the purchaser obtaining finance or receiving a client list prior to settlement. Sale conditions can be difficult to negotiate, so it is important to seek professional legal advice on specific conditions you wish to include.

3. Any restraints of trade?

A restraint of trade clause prevents the vendor from soliciting clients, customers, suppliers or employees from the purchaser or competing with the purchaser’s business. Restraint of trade clauses restrict the vendor for a specified time period and/or in a certain area. For example, the seller may be prevented from operating a similar business as the purchaser in New South Wales within 12 months after the sale.

A restraint of trade clause that goes further than necessary to protect the legitimate business interests of the purchaser will be unenforceable and void. If you are unsure about the enforceability of a restraint of trade clause, you should ask a legal professional to review your contract.

4. What will happen to employees?

Your contract should address whether the sale has the effect of transferring or terminating employees. In some cases, parties may agree that existing employees must be re-interviewed by the new business.

Sellers must comply with their obligations under the Fair Work Act 2009 (Cth) when dealing with employees. They must honour any employee entitlements such as annual leave, flexible working arrangements, and sick leave. Employees who are not transferred to the new business may also be entitled to redundancy pay.

5. What happens to your intellectual property?

Intellectual property rights include your phone numbers, trade marks, social media accounts, copyright, designs and patents. Your contract should clearly set out who retains ownership of these rights, and whether they are licenced or transferred as part of the sale.

Where to now?

Sale of business contracts should include any conditions of sale, all the commercial details of the transaction, and clauses relating to existing employees and intellectual property.

If restraint of trade clauses go further than necessary to protect the business interests of the purchaser, they will be void and unenforceable.

Contact us if you are thinking of selling a business.

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