How to Create a Sale of Business Contract

Once the owner of a business (the vendor) and the buyer (the purchaser) agree on the sale of that business the details of the deal have to be incorporated into a a written agreement called a Contract for the Sale of Business. Normally, it is the vendor’s solicitor who prepares the Contract and submits it to the solicitor for the purchaser. In order to save time and money it is important that the parties work out as many details of the arrangement before instructing their legal representatives. The matters that the parties should resolve as early as possible include:

(a) the names and details of the parties involved in the transaction;
(b) the sale price;
(c) the apportionment of the sale price between goodwill and equipment;
(d) the terms of the restraint on the vendor competing against the purchaser over a certain time and geographical area;
(e) the inventory of equipment;
(f) the trial period the purchaser is to be allowed before settlement and the training period after settlement;
(g) whether the business is to be sold as a going concern to avoid payment of GST; and
(h) whether the purchaser will be getting a transfer of the existing Lease or a new Lease from the lessor. Once the purchaser’s solicitor receives the Contract, legal advice will given to the purchaser which may result in further amendments to the Contract being negotiated between the parties. As soon as the Contract is in its final form each party will sign a counterpart Contract and the solicitors will exchange Contracts at which time the purchaser will pay the 10% deposit. From that moment both parties will be legally bound to proceed with the transaction.