The sale of a business isn’t like your everyday transaction. It is a complex process with many moving parts. Miss a step, and you might be dealing with misunderstandings, unexpected liabilities, and legal disputes.

But if you must keep things airtight, then a robust business sale agreement is a must-have.

In this guide, we’ll break down everything you need to know—what a business sale agreement is, the different types, when to use one, and what you must do before signing on the dotted line.

To soften the ground even further, we’ve included a free business sale agreement template you can customize and use to close deals more efficiently.

TLDR? Here are key points from this guide:

• A business sale agreement is a contract that outlines the terms for selling or buying a business.
• These sections are important: parties, description, assets, liabilities, purchase price, payment terms, warranties, seller restrictions, confidentiality, and dispute resolution.
• Before signing a business sale agreement, conduct due diligence, review all terms, assess the existing customer base, and be clear on the transition process.
• Keep your copy secure, automate compliance tracking with a CLM, update your regulatory filings, and regularly review your business sale agreement against current realities.

What is a business sale agreement?

A business sale agreement is a contract that lays the ground rules for selling a business and its assets. 

It contains all the information regarding the business, its selling price, and every term and condition associated with the transfer of ownership.

Apart from its assets, a business sale agreement may also provide details of any liabilities (like outstanding loans, accounts payable, and potential legal claims) the buyer will assume once the sale is finalized.

The two major types of business sale agreements are:

• Assets Purchase Agreement (APA): focuses mainly on the buying and selling of business assets. The buyer doesn't necessarily buy every part of the business unless the business agreement explicitly says otherwise.
• Shares Purchase Agreement (SPA): where the business sells its shares to another individual or company. By purchasing these shares, the buyer takes over the entire business and assumes ownership of its assets and liabilities.

Also read: 7 Types of Sales Contracts + Best Practices for Executing Them

Free Business Sale Agreement Template

We’ve provided a business sale agreement template to give you a headstart in your drafting process. This template contains the major provisions and sections found in standard business sale agreements.

Be sure to modify this template to fit your unique requirements.

When do you need a business sale agreement?

In a nutshell, you need a business sale agreement when you want to buy or sell a business, whether as a whole or in part.

Here are some common instances:

• Complete sale of a business: This is the most common scenario, where the entire business (meaning all its assets and liabilities) is being transferred to a new owner. An SPA will make more sense since the buyer gets the whole business.
• Partial sale of a business: In this case, the seller may have decided to sell the rights to a product line, a business division, or a selection of the business's assets. For this, the contracting parties will need an APA.
• Mergers and Acquisitions (M&A): In more complex scenarios like M&As, where a company combines with another business or acquires it all together, a business sale agreement plays a major role. Depending on the nature of the M&A, an SPA or APA might be used.

Source: Francesca Nicasio via LinkedIn

• Asset acquisition by startups: Some startups may prefer to purchase equipment or other assets from existing businesses to save costs. For such transactions, an APA will be the most common approach.
• Divestitures: When a company wants to sell some of its non-core assets to raise capital or simply focus on more important operations, it'll need an APA.

Also read: Contracting in Business: Everything You Need to Know

Components of a standard business purchase agreement

Source: Matthew Kneller via LinkedIn

A business purchase agreement is essentially the same as a business sale agreement. What you call it is only a matter of perspective (whether you’re the buyer or seller).

That said, such documents are complex in real life, with many moving parts. And because every business purchase agreement is unique, the exact structure and components always vary at the granular level.

Regardless, certain components must be present in business purchase agreements. They include:

#1 Parties

This part details who's who in the business purchase agreement. What are the names, contact information, and addresses of the parties involved? If there are multiple entities—say, a parent company or a holding firm—this part will cover them as well.

#2 Description of the business

This part provides a detailed overview of the business in question.

Obviously, it’ll start with the business’s official name. Then, it’ll highlight its legal structure—is it an LLC, corporation, sole proprietorship, or something else?

It’ll also talk about the business’s physical location (or locations if it’s multiregional). Additionally, it’ll explain the nature of the business’s operations: what does it sell? What industry does it play in? etc.

#3 Assets

What assets will the buyer inherit as a result of buying the business? Assets can be classified into tangible and intangible categories.

Tangible assets include equipment, company vehicles, inventory, furniture, etc.

Customer lists, trademarks, intellectual property, domain names, and financial assets all fall under the intangible category.

This section may also discuss existing contracts, accounts receivable, and proprietary software.

If there are assets the business seller wants to retain, this section will also explain that.

#4 Liabilities

The business purchase agreement may also talk about liabilities the buyer is assuming. These are just as important as the assets.

Liabilities like accounts payable, lease obligations, tax liabilities, and outstanding loans are common in business purchase agreements.

#5 Purchase price

Here, the business agreement does a price breakdown, showing how it arrived at its total purchase price. The purchase price might require a flat payment or include adjustments for things like:

• The value of inventory at closing
• The business’s accounts receivable and payable
• Any agreed-upon performance-based incentives (earnouts)

It also clarifies whether the total purchase price includes sales tax, legal fees, or other transaction costs.

#6 Payment terms

This component contains all the fine print for how the buyer will make their payment. It answers questions like:

• Will the buyer pay the purchase price at once or in installments?
• Is part of the payment tied to future business performance?
• Does the purchase involve seller financing (where the seller loans part of the purchase price to the buyer at an interest)?
• Who covers the closing costs, taxes, and legal fees?

#7 Warranties

This part focuses on buyer protection. It contains details of every guarantee the seller is making.

For example, the seller may guarantee the following:

• They have the full legal rights to sell the business and its assets.
• The financial records are accurate and up to date.
• There are no hidden liabilities.
• The seller owns the assets listed in the business purchase agreement.

#8 Seller restrictions

This component places restrictions on what the seller can do after selling the business. For instance, the seller may not be allowed to start a competing business until after a specific time frame. 

They may also be restricted from drawing employees, customers, and suppliers away from the business.

#9 Confidentiality

Business sales involve access to financial records, trade secrets, customer lists, and other sensitive information.

The confidentiality section makes sure that neither parties disclose this sensitive information to unauthorized third parties.

#10 Dispute resolution

What if a dispute comes up after the business agreement has already been executed? How will the parties involved address it?

The dispute resolution section talks about how both parties will handle the situation. Negotiation, mediation, litigation, and arbitration are some of the most common resolution mechanisms contracting parties use in everyday business agreements.

Also read: Finding Common Ground: How to Resolve Contract Disputes

Importance of a business sale agreement?

A business sale isn’t something you seal with a handshake and blind trust. Every detail, from payment terms to assets and liabilities, needs to be spelled out in the pages of a business sale agreement.

Here’s why:

#1 A business sale agreement offers legal protection

A business sale agreement is a legal commitment by all parties. Thus, it obligates everyone to fulfill their promises.

If the counterparty breaches the agreement, a business sale agreement allows you to hold them accountable, seek monetary damages, or even force them to fulfill their obligations.

#2 There’s clarity on assets and liabilities

Nobody wants to buy a business only to find out they’ve inherited a pile of hidden debts. A business sale agreement lays everything on the table, including all tangible and intangible assets as well as short-term, long-term, and contingent liabilities.

This is important for due diligence as it helps all parties understand what they’re signing up for.

#3 Parties have a framework for resolving disputes

Disagreements happen, but a well-drafted contract sets the rules for handling them. Instead of a courtroom faceoff, both parties get a clear alternative roadmap to resolution. This can be mediation, negotiation, or arbitration.

#4 It supports the transition of ownership

Handing over a business isn’t as simple as swapping keys. Employees, customers, and contracts all need to transfer smoothly. A business sale agreement addresses employee retention, non-compete clauses, training, and other areas required to help the new business owners get up to speed.

That way, the business handover can be completed without necessarily causing a halt in operations.

#5 It keeps you on the good side of the law

A sloppy business sale can land you in legal hot water, from tax penalties to regulatory sanctions. A business sale agreement makes sure everything is done by the book so that both parties can close the deal with peace of mind.

Also read: What is Contract Compliance? The Ultimate Guide

Source: Trevor W. via LinkedIn

What to do before signing a business sale agreement

“You can either be part of the cleanup crew or do stuff to avoid that cleanup situation altogether."

~Gitanjali Pinto Faleiro, General Counsel, Company Secretary & CCO at Greenhill & Co.
‍Navigating the C-Suite as a GC

Signing a business sale agreement is a huge decision and should be done only when you fully understand what you're getting into.

Before you put a mark on those dotted lines, make sure you’ve done the following:

#1 Do your due diligence

If you’re a buyer, thoroughly check the business's financial records, from tax filings to profit and loss statements. Look for inconsistencies, and don't ignore any red flags.

Check for pending lawsuits, claims, or regulatory issues. Do they have all the necessary licenses to operate in their jurisdiction?

Verify that all assets listed by the seller are intact, and also inquire about liabilities. Are there any existing loans, leases, or future obligations?

If you’re on the sell side of the agreement, you must assess the buyer’s reputation and financial capability.

If the deal involves seller financing or an earnout, check the buyer’s creditworthiness and business background.

#2 Thoroughly review the business purchase agreement

Make sure that the contract contains all the right clauses and that these provisions serve both parties' interests. Typical sections to look out for include the pricing, warranties, assets, liabilities, and restrictions, as already covered in the previous section. 

You can take advantage of a contract review tool like SpotDraft to quickly find errors or any area that needs attention.

Don't hesitate to renegotiate if you're uncomfortable with specific parts of the contract.

Also read: How to Review Different Types of Contracts | + Free Checklist

#3 Make sure the transition plan works for you

What kind of training support will the seller provide to help you take over the business? Will they stay on for some time (for example, six months) to help you and your team settle?

Do they intend to introduce you to their major customers and suppliers? And what’s the plan for their existing employees?

Make sure you have answers to all these questions so you won't have a problem getting up to speed with the business.

If you’re the seller, also make sure the timelines are favorable. Negotiate how long you’ll stay post-sale and how far you’re willing to go with the transition.

#4 Look at the customer base and analyze the churn rate

Source: Nishi Patel via LinkedIn

What’s the business’s customer concentration like? Do they have a few major customers? If that’s the case, losing even one of these customers might affect revenue significantly.

Make sure you have a conversation about introducing you to these customers and put it on paper.

Also, find out what the customer churn rate is. If the business has a high churn rate, a change of ownership can result in an even worse churn at the initial phase. Take note of this and highlight it during negotiations.

Also read: Everything You Need to Know About Purchase and Sale Agreements (+ Free Template)

Managing your business sale agreement

Signing a business sale agreement isn't where the work ends. In fact, it's just the beginning. You need to make sure the transition process is smooth and everyone upholds their side of the agreement. 

That's where smart contract management comes in. Here's how to go about it.

#1 Keep your copy in a secure storage

Store the original copy in a secure repository. It is best practice to have a centralized repository for all your contracts.

Platforms like SpotDraft make secure contract storage easy. Along with airtight security, it offers a search functionality that allows you to find your contract using keywords associated with it. That way, it's easy to retrieve a contract whenever you need to reference it.

#2 Automate your compliance tracking

What is the timeline for payment completion, asset transfer, and transition assistance?

You need to keep a close eye on these obligations to make sure all parties deliver. But this isn’t something you should do manually.

You can get more efficient by setting up automated reminders and milestone tracking through a Contract Lifecycle Management (CLM) tool.

“Leveraging a CLM has been key because it has reduced a lot of friction from handoffs between legal and business.”

‍~Jonathan Franz, Head of Legal, Crunchbase
‍Enabling Business-Legal Collaboration: Advice from 7 GCs

#3 Update your regulatory filings

You can’t expect government agencies or regulatory bodies to automatically know about the change of ownership. Delaying their notification might lead to penalties, so you need to act on time.

Update all licenses and permissions, file ownership changes with corporate registries and tax authorities, and notify banks, insurers, and suppliers about the transfer.

#4 Have a schedule for reviewing the agreement

It is important to regularly review the business sale agreement against the business's actual performance. This will help you spot any emerging issues and also make sure that the obligations outlined in the contract are being followed.

Work with a checklist that covers major areas of consideration like:

• Payment and other deliverables
• Actual financial performance vs projections
• Production level, customer acquisition, and churn rates
• Regulatory compliance, etc.

Frequently Asked Questions (FAQs)

#1 Is a sale agreement a legal document?

Yes. If properly drafted, a sale agreement will be legally binding and enforceable by law.

#2 How to write a sale agreement?

You can write a sale agreement from scratch or use a business sale agreement template. Platforms like SpotDraft offer robust templates with all the necessary guardrails to help you draft an agreement efficiently.

You can also leverage AI tools to streamline the drafting process. But make sure qualified legal professionals carefully review the document.

#3 Is a sale agreement valid without registration?

Generally, a sale agreement is valid as a contract between the parties, even without registration. However, registration may be required for certain types of sales (like real estate) or to protect against third-party claims.