1. What is a Purchase of Business Agreement?
A Purchase of Business Agreement, also known as a Business Purchase Agreement or Sale of
Business Agreement, is a legal document used when an individual or corporation acquires either
the assets or a controlling interest (all or majority shares) of a company. This agreement outlines
all details related to the purchase, including price, payment terms, warranties, and other relevant
conditions. It is typically used during a business acquisition or asset sale.
2. What is the difference between assets and shares?
Assets refer to the tangible and intangible property owned by a business that can be assigned a
monetary value. Examples include client lists, contracts, office equipment, files, inventory, and
more.
Shares represent portions of ownership in a company. Shareholders are entitled to a share of the
profits and, in some cases, voting rights in business decisions.
3. Can assets be excluded from the purchase agreement?
Yes. Specific assets can be excluded from the sale, depending on the agreement between the buyer
and seller. Common exclusions may include cash, securities, and accounts receivable.
4. What are the payment terms in a Purchase of Business Agreement?
The agreement should clearly outline the payment structure for the purchase of either assets or
shares. Key components include:
Closing Date: The date on which the transaction is finalized, and ownership is transferred.
Deposit: An upfront payment made by the buyer toward the purchase price.
Payment Options: Methods of payment such as a lump sum, a lump sum with a Promissory Note
for the balance, or a Promissory Note for the full amount.
5. How are shares and assets priced?
Shares can be valued using:
Aggregate Purchase Price: A total amount paid for all shares.
Per Share Purchase Price: A price is assigned to each share, then multiplied by the total number of
shares.
Assets should be individually priced, even if all assets are being purchased. This is important for
tax reporting, as some assets may be taxable depending on the jurisdiction.
6. What are the warranties in a Purchase of Business Agreement?
Warranties are guarantees made by either party as part of the agreement. They can cover a range
of promises and are typically binding for a specified period. Common warranties include:
Non-Competition Clause: Prevents the seller from engaging in a competing business for a defined
period.
Non-Solicitation Clause: Prevents the seller from soliciting or hiring former employees of the
business.
Confidentiality Clause: Prohibits the sharing of sensitive or proprietary information.
Statement of Environmental Compliance: Confirms the business is following applicable
environmental laws, limiting liability for the buyer.
Additional warranties can be included depending on the specific needs of the transaction.
7. Who can review the terms in a Business Purchase Agreement?
Both parties may confirm the accuracy of their representations through:
Officer Certificate: Issued by an officer of a corporation or manager of a non-corporate entity to
verify specific facts.
Legal Opinion: Provided by an independent lawyer who reviews and confirms the legal soundness
of the agreement.
8. What is a “condition precedent”?
A condition precedent refers to a requirement that must be fulfilled before the transaction can be
completed. These conditions often include the verification of representations and warranties and
other obligations that must be satisfied before the agreement becomes effective.