Sale and Purchase of Business

The process of buying or selling a business can be challenging if you do not have any appropriate exposure in business before.

What you need to know?

• Buying or selling a business is a significant decision. Whether you are a seller or a buyer, it is important that you protect your interests (before, during and after a transaction).

• One of the first steps in the business purchase journey is due diligence. Due diligence is the process of investigating the business and its operations to give you more information about what you are purchasing. A lawyer can assist during the due diligence phase of a business purchase. For instance, if you are purchasing a business that has many clients, you will need a lawyer to check that contracts are in place with each customer and that those contracts cannot easily be terminated.

• In general, the seller will be responsible for preparing a sale of business agreement. The buyer will then review the agreement and suggest amendments. After that, the parties will negotiate until they reach an agreement that suits both of them. It is a good idea to use a lawyer to help you with drafting, reviewing, and negotiating the sale of business agreement.

• For the sale of smaller businesses, it is common to use a standard form sale of business contract. However, many buyers and sellers add special conditions to the contract that set out particular terms for their transaction. If you are selling a more complex or higher-value business, your lawyer might prepare a bespoke contract.

The key terms in a sale of business agreement cover:

(i) the subject matter of the transaction (what assets are included in the sale);
(ii) the price;
(iii) when the buyer will need to pay the seller;
(iv) what liabilities each party will take on and what protections will apply if the business is not a success after the deal is finished; and
(v) non-compete obligations.

• A non-compete clause is a type of restrictive covenant: a term of a contract that has the effect of limiting the commercial activities of a person or business. In the context of a business sale, a buyer will want to ensure that the seller cannot set up a new business to compete with the old business after the sale has been finalised. To be enforceable, a non-compete clause must be reasonable to protect the interests of the buyer. Thus, it is a good idea to seek the advice of an experienced lawyer, who can help draft a clause that strikes the right balance for your transaction.

If you would like to know more about the Sale and Purchase of a Business or your rights and options, Straits Lawyers are here to help. We are now offering online services in both English and Chinese.

Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.