Business Sale Contracts: What Must be Included to Ensure It Is Legally Binding


It is extremely important your sale of business contract includes all essential terms. A failure to execute something vital to the agreement can either make the contract not legally binding, disadvantageous to one or both parties or easy to negate.

No two business contracts are the same so it is important you obtain legal advice before selling your business. A solicitor can show you the terms of sale, what you are and aren’t entitled to and draw up a legally binding contract.

The following elements are important pieces of information to consider when entering into a sale of business contract. While the specifics will vary between businesses, it is worthwhile considering what terms of sale you would like in the contract, what you are hoping to receive from the agreement and how and when the contract is to be binding.

A clear list of involved parties:

While this may seem straight forward, it is important all parties are identified with their full name, address and business affiliations listed. This is to negate the chance of someone claiming they were not a party to the contract. The inclusion of the business name shows the person is acting for that company, as opposed to being personally liable.

The wording should be set out as follows:

“The following is a contract between John Johnson, of Johnson Enterprises, 10 Hunter St, Newcastle NSW 2300, and Sally Smith, of Smith Enterprises, 15 Beatty Bvd, Newcastle NSW 2300.”

It is also worth noting if any other businesses or people are involved in the transaction, they must be included or mentioned within the contract. This could include key employees or service entities. This will ensure the purchaser is receiving the business as it is currently operating and is not under any false illusions of what they are set to receive.

List the included items in the sale contract:

It is vital you list all assets included in the contract. This may include both physical assets, client lists, intellectual property, copyrights, premises or assignment of leases and inventory. Any items the business will need to conduct everyday operations should be listed if this is part of the agreement. Specified inventory is also important, especially if there is more than one of each item. You should list the quantities of any specific items and describe their condition, location and how the items are to be received.

What will ultimately be included in the sale contract will depend on the nature of the business and the intentions of both parties. It is vital, however, that all intentions and components of the business are to be explicitly listed in the contract.

Sale terms:

The terms of sale are essentially what needs to be satisfied for payment to go through. It is important this component is clear and wholly agreed upon. Things to be included in this section include the payments terms, when and how a deposit will be made, any contingent conditions that may apply to the sale and whether there is to be any restraint on the sellers regarding the future of the business.

If there are contingent conditions present in the contract, it is important all parties are fully aware the sale may not go through unless these conditions are met.

Other components which may be included in this section include confidentiality terms, requisitions and training terms. Training terms are sometimes included to make the transition easier for the purchaser. This could involve an invitation from the seller to the buyer to come see how the business is run, and what processes take place. The logistics of any training terms will depend on the nature of the business.

Execution and binding agreement:

When drafting the final contract, it should be stated the mode of execution is signing. This means any oral representations, whether in contract negotiations or discussion, are not binding unless they have been explicitly stated in the contract.

Further, it should be included there are to be no amendments to the original contract unless on the agreement of both parties. It is not uncommon for one party to realise they have been disadvantaged by a certain element of a contract after it has been signed and executed, and hence seek an amendment. By implementing this clause in the original contract, this cannot be done unless both parties agree.

Finally, all parties involved in the contract are to sign (with their position titles included) and date multiple copies of the document. This is so all parties can have an original copy of the agreement. Depending on the nature of the contract, the parties may be required to have their signature witnessed by a person over 18 who is not a party to the contract. A solicitor can advise you if this is necessary for your individual agreement to be binding.

No two business sales are the same. Therefore, it is extremely important you consult a lawyer when entering this process. Your lawyer can go through the contract with you, making sure it is legally binding, you understand all required elements and you are set to receive the benefits you require. A failure to execute either a legally binding contract or a contract you do not entirely agree to or understand can have tremendously negative effects on your business.

Looking for an experienced solicitor in Newcastle, Sydney or the Hunter to assist you with selling or buying a business? Call us on (02) 4929 7002, email us or complete an enquiry form.