Business Sale Agreement

Buying and selling a business can be a complex matter but the basic framework of areas to be considered remains largely constant. The template provided by us is a basic form that will cover the sale and purchase of most small businesses - it is most suited to low value transactions where the sums involved do not warrant the use of a solicitor (whose fees for this type of work can be substantial).

Generally speaking the price is apportioned between the goodwill, the equipment and the stock. The way this is split can be relevant from a tax point of view. If you need advice you should consult an accountant.

Where the seller of a business is registered for VAT then on the the face of it VAT would have to be charged on the sale price. There is however a common exception to this. The transaction can be taken outside of the scope of VAT provided that it constitutes what is known as a Transfer of a Going Concern (TOGC for short). For this to apply both the seller and the buyer have to be registered for VAT purposes and the buyer must continue the same business in succession to the seller. The sale must include all the assets reasonably necessary for the buyer to continue the business. If these conditions are not met then VAT will be chargeable. Of course if the seller is not registered for VAT purposes then VAT cannot be charged in any event.

As a general principle when a business is transferred all the employees transfer as well. The sale of the business does not terminate the contracts of employment. The buyer will take over responsibility for the employees and so the buyer needs to find out all the information he can before proceeding.

On the whole leasing or HP agreements tend not to be transferable. The agreement therefore deals with these by saying that they will be held by the seller as nominee for the buyer until such time as they can be re-written - generally with the consent of the leasing or HP company.

The seller will normally give certain warranties about the business. The idea is that the buyer is entitled to rely upon these as statements of fact that induce him or her to enter into the agreement. These are a matter of negotiation - the buyer will want as many warranties as possible and the seller will want to give as few as possible.

Sometimes the owner of the business will have entered into contracts with his or her customers and the buyer will want to have the benefit of these. They will not be directly enforceable between the customer and the buyer because there is no contract between them. To get over this the buyer will either have to enter into new contracts with the customers or the existing contracts will need to be novated. Either way it will require the co-operation of the customer.

Briefly, our template assumes that completion of the sale will follow immediately after exchange of contracts, that any employees will pass with the business to the buyer, that any book debts are retained by the seller and that there are no premises (either freehold or leasehold) being transferred. It contains clauses dealing with the following:

  • division of price between goodwill, equipment and stock
  • exclusion of assets retained by the seller
  • vat
  • apportionment of outgoings
  • manner of payment on completion
  • employees
  • transfer of any leasing or HP agreements
  • apportionment of liabilities
  • warranties
  • restrictive covenant

Please bear in mind every business sale is individual. Our template will be a good starting point but it is unlikely to be suitable for use exactly as downloaded - you will need to be prepared to make changes to tailor it to be relevant to the particular business in question.

If you are currently running a business either as a sole trader or in partnership and wish to transfer this to your own limited company then see our Useful Links for Incorporation of Existing Business.

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The documents available on this site have been prepared for use in England & Wales. They may not be valid if used in other areas.