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Step 6 - Close The Sale

The Sales Contract

 

In most cases the buyer's attorney will be the one to draft the Sales Contract.

You will notice I used the word "draft" because until all the details are agreed to by both sides the contract is just that, a draft. It is expected that attorneys for both sides will have to negotiate on some of the details and the exact wording of the final contract.

 

Representations And Warranties

There is one section where you should insist your lawyer do the drafting and that is the Representations and Warranties Section.

This section lists the promises you, the seller, make to the buyer about the condition of your business at the time of the sale.

It's common - expected even - that during discussions with the buyer, the seller will embellish or spin the facts to portray the business in the best possible light. But at the closing everything about the sale must be put in writing - and you will be legally accountable for what is written.

Since these are promises you are making it is imperative that you and your lawyer be the ones to draft this section of the sales contract.

Here is a list of some of the more important representations made by the seller:

• The seller owns the assets and those assets will be without lien at the time of closing

This is a very small sample of the types of items that can be listed under the Representations And Warranties. But I'm sure you get the idea - when it comes time to close the deal, everything must be put in writing. This is why it is so important to have a lawyer experienced specifically in these types of small business transactions. The value of their experience and knowledge throughout the closing process might be the best investment you ever make.

 

Common Items In The Sales Contract

There is no universal template for a sales contract. Since every sale is unique the content, structure and length of each will vary. But some elements will be in almost every contract. They are:

 

• Statement Of Sale - This section describes the parties involved in the sale, what the buyer is purchasing and whether the sale is a stock or asset sale.

• Statement Of Price And Terms - This section lays out all the facts regarding money such as price, down payment and other financing terms.

• Assets And Liabilities - Lists all the assets and liabilities that will be transferred as part of the sale. In most sales not all assets that the business owns or uses will be transferred. Who is responsible for what liabilities is always an important issue in business sales. This section is where you will state which liabilities the buyer will assume and which ones the seller will pay off.

• Indemnification - An indemnification clause states that a seller agrees to reimburse the buyer for any money lost if the seller breaches any of the Representations or Warranties.

• Allocation Of Assets - (Applies only to Asset Sales) This section breaks down the total selling price and assigns a certain portion of the overall price to each of the assets included in the sale. This is a vitally important section because it can have a dramatic effect on your tax bill. We discuss negotiating the asset allocation in detail in this article.

• Closing Date - States the actual date and place of the closing.

• Attachments - Some examples of attachments that might need to be included are the promissory note, consulting contracts or a non-compete clause.

 

Depending on the size and complexity of your business, the length of the contract can be over 100 pages or it can be very short. Whatever the size of the agreement, go over it in detail with your attorney and make sure you understand all your rights and obligations.

 

NEXT: Closing Checklist For An Asset Sale
    And  Closing Checklist For An Entity Sale

 

Sell Your Business Tips, Hints & Techniques: Enter your name & e-mail address below and each week I'll send you detailed tips, facts, resources & ideas you can use right away to help sell your business faster and for more money.

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The Six Steps To Selling Your Business
Step 1 - Preparation  Step 2 - Valuation   Step 3 - Finding Buyers
Step 4 - Structure The Sale  Step 5 - Due Diligence  Step 6 - Closing

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