A business owner contacted SLB Legal for help with the sale of their business. A potential buyer had made the business owner an offer and was keen to move quickly. The buyer had a sale of business contract, which the buyer had found online and wanted the seller to sign.

The seller felt under time pressure and was close to signing the contract “as-is” to secure the deal.

Luckily, before doing so, they asked SLB Legal for advice.

On review, it was immediately clear to us that the template contract was heavily weighted in favour of the buyer and contained several terms that were unsuitable and risky for the seller based on the proposed business asset sale.

What were the risks for the seller?

The sale of business contract was drafted in complicated legal language, containing lengthy and sometimes vague conditions. The seller was unaware that if they accepted the contract “as-is”:

• The seller could have been exposed to excessive and potentially unlimited liability due to broad and extensive seller warranties. Many of these were not relevant or appropriate for the business and assets being sold.
• Overly broad restraint of trade and non-compete conditions would have effectively prevented the seller from earning a livelihood in their skill set and near to where they lived. This was not what both parties had discussed. 
• There was a real risk of future disputes about which assets were included in the business assets being sold versus personal assets that the seller intended to keep. 
• The seller would have been obliged to transfer permits and licences that, in practice, could not legally be transferred based on the relevant authorities' requirements.

How did SLB Legal Help?

SLB Legal conducted a comprehensive review of the sale of business contract. We then met with the seller to have an in-depth discussion about:

• The nature of the business being sold;
• The assets required to operate the business; and
• The seller's plans after completion of the sale.

Based on the seller's instructions and our review of the contract, we negotiated and amended the sale of business contract to ensure it was fit for purpose. The amended agreement:

• Clearly identified the business and assets being sold: which reduced the risk of disputes over what was included in the sale versus personal items.
• Removed and limited warranties: helping to ensure the promises made by both parties were reasonable, relevant, and appropriately limited in time and scope.
• Properly narrowed and clarified the restraint of trade: the buyer's legitimate business interests post-sale were protected, without stopping the seller's ability to earn fair post-sale income and employment.
• Customised the settlement process: generic requirements from the online template were replaced with practical settlement steps and activities that reflected what could actually be achieved by the parties to complete the transaction.

The revised sale of business contract was practical, balanced, and aligned with the real commercial intent of both parties.

The result

The sale of business proceeded using a fit-for-purpose agreement that properly reflected the transaction agreed by the parties.

The seller also completed the sale of their business without exposing themselves to unnecessary future legal risk, and both parties were able to work together amicably to complete the sale and transfer the business to the new owner.

Even a “simple” sale of business can carry long-term legal consequences if the contract is not properly reviewed and tailored.

If you are buying or selling a business and want to avoid unnecessary legal risk, contact SLB Legal today for customised legal advice and contract drafting before you sign.