AGREEMENT FOR PURCHASE AND SALE OF A BUSINESS - CONTRACT TO BUY AND SELL A BUSINESS
Buying or selling a business can be extremely complex and can deal with a large variety of issues. The complexity of the sale or purchase of a business will depend on the legal status of the business and the condition of the seller and buyer in addition to issues and agreements as to how the purchase or sale is structured. The parties to a purchase and sale agreement might have special considerations such as covenants not to compete, employment contracts, intangible property rights, retirement plans, and indemnification provisions that are needed to name a few. Dallas business contract lawyer Thomas P. Finley will draft an agreement for the purchase and sale of a business with the information provided by the client based upon terms previously agreed upon by the buyer and seller. Contact me for a consultation.
The following is a brief summary and general overview of some of the considerations in the purchase and sale of a business as it relates to the particular form of the business being purchased or sold.
Purchase and Sale of a Corporation
When a company is incorporated, a sale or purchase an incorporated business may be achieved either by selling or buying the corporations assets or by selling or buying the stock owned by individual shareholders. The purchaser or buyer of a corporation may be one or more individuals, a partnership, another corporation, or some other business entity. When considering the purchase or sale of a corporation, certain corporate approvals and possibly government approvals may be required when another corporation is the purchaser or buyer. Close corporations usually have a shareholders agreement that may have restrictions on the purchase or sale and stock certificates with restrictions. Subchapter S corporations have certain restrictions under provisions of the Internal Revenue Code. In addition, the sale of a corporation may trigger rights under related agreements of the corporation.
The purchase and sale of a corporation can be achieved by the purchase and sale of the stock of the corporation or the purchase and sale of the assets of the corporation. Purchase and Sale of Shares of stock. When buying or selling the shares of stock, all or part of the corporation’s shares might be sold. A sale of all the corporation’s shares of stock at the same time to the same purchaser or purchasers constitutes a sale of the business. The buyer or buyers become the owner(s) of all the corporations assets and usually assume known as well as unknown liabilities of the business. Purchase and Sale of Assets. When buying or selling the assets of the corporation, the shareholders of the corporation may agree to sell some or all of the assets of the business and not their stock. If substantially all of the assets of the corporation are sold to a purchaser and the sale is not in the usual and regular course of business the sale requires approval of the board of directors and a minimum of two-thirds vote of the shareholders of the business, unless provided otherwise in the certificate of formation, in accordance with Tex. Bus. Orgs. Code 21.457. Additionally, minority shareholders may have the right to dissent to the sale and to force the selling corporation to value their shares and purchase them at the established value in accordance with Tex. Bus. Orgs. Code 10.354. A sale of a corporation’s assets generally subjects the purchaser to the corporations liabilities only if the purchaser specifically assumes the liabilities or as provided by statute Tex. Bus. Orgs. Code 10.254(b).
Purchase and Sale of a Sole Proprietorship
When buying or selling a sole proprietorship, the owners who sell a sole proprietorship or other business that is not a partnership or corporation normally sell both the assets and liabilities, if any, of the business. Through negotiation, the parties determine whether the seller will sell all or only specific assets to the purchaser and whether the purchaser will assume all or only specific liabilities as part of the transaction. The purchase and sale agreement should contain an exact list of the parties agreement on the assets sold and liabilities assumed. The buyer and seller of a sole proprietorship sometimes contains an agreement or covenant not to compete, indemnification agreements, and other agreements specific to the sole proprietorship business.
Purchase and Sale of a Partnership
The purchase and sale of a partnership may be accomplished by either one or more of the individual partners selling their individual partnership interest or the partnership itself, as an entity, sells the partnership assets. The buyer and seller of a partnership should agree what specific liabilities the buyer agrees to assume as a part of the purchase and sale of the partnership. In the purchase and sale of a partnership it is always important to review the partnership agreement and its terms with relation to the purchase and sale agreement.
FREQUENTLY ASKED QUESTIONS (FAQ) WHEN BUYING A BUSINESS OR SELLING A BUSINESS:
Dallas business lawyer Thomas P. Finley will draft an agreement for the purchase and sale of a business with the information provided by the client based upon terms previously agreed upon by the buyer and seller. Contact me for a consultation. A prospective buyer or seller of a business can also consider the following information which is a summary of some general and frequently asked questions (FAQ) and information to consider in the drafting of an agreement for the Purchase and Sale of a Business:
(1) What is/are the name(s), address, and telephone number of each person authorized by seller to be contacted with respect to terms of the sale, negotiations, collection of information, and for final approval of the Contract for Purchase or Contract for Sale of the business?
(2) What is the Name and address of the business being sold or purchased?
(3) What type of business is being sold or purchased? That is, what type of business is the business engaged in doing?
(4) How many employees does the business have, if any.
(5) What is the Federal employers identification number (FEIN)?
(6) Does the business have a Texas Workforce Commission account number?
(7) Are there license and permit numbers held by the business being sold, such as a sales tax permit and/or alcoholic beverage license.
(8) Name, address, and telephone number of each person authorized by purchaser to be contacted with respect to negotiations, collection of information, and for approval of final contract.
(9) Agreement between the Purchaser and Seller as to the purchase price including (a) Total purchase price; (b) Consideration being paid for the total purchase price such as stock, exchange of property, cash, Promissory Notes, etc.
(10) Is the agreement for the Purchase and Sale of Stock in the business or the Purchase and Sale of the Assets of the business?
(11) Is there an agreed proposed closing date of sale and purchase?
(12) What is the legal status of Seller? For example, is the Seller a corporation, partnership, limited partnership (LP), individual seller, or limited liability company (LLC)?
(13) What is the legal status of Purchaser? For example, is the Purchaser a corporation, partnership, limited partnership (LP), individual seller, or limited liability company (LLC)?
(14) What is the financial status of the parties and business being sold and have the Buyer and Seller discussed the financials of both parties?
(15) What is the purpose of proposed purchase or sale of the business such as distress or business opportunity.
(16) Are there any litigation or claims threatened or pending against business being sold?
(17) Is there a description, value, and tax basis of each asset? Have the parties retained a Certified Public Accountant (CPA)?
(18) Is there a list of liabilities for the business being sold and a description and nature of each liability of the business being sold?
(19) Name, address, and telephone number of any escrow agent and/or broker proposed to be involved in sale.
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