How to Draft a Legally Binding Business Sale Agreement in Australia

Buying or selling a business in Australia is a strategic decision. The complexity of the process makes it essential to draft a well structured business sale agreement. It is a legally binding document that defines the terms and conditions of selling a business in Australia. In simple words, it protects the rights of business buyers and sellers while ensuring the lawful, transparent, and trustworthy transfer of ownership.

The agreement encompasses complete and precise details of the business, including purchase price, payment terms, assets and liabilities, covenants and non compete clauses, warranties, etc to prevent future disputes and expensive legal consequences. Let’s unveil key tips to draft a legally binding business sale agreement in Australia. Whether you are buying a business in Gold Coast or selling an established one to start something new and better, understanding key components and legal due diligence of this agreement can help you make an informed decision.

1. Begin with Due Diligence Before Drafting the Agreement

This is one of the crucial steps that can determine the smooth business acquisition. In Australia, a Business Sale Agreement is usually prepared by the seller’s solicitor. However, both buyers and sellers, engage in their legal advisor to check, negotiate and finalise the legally binding document.

As a seller, it is your core responsibility to disclose all the credential details about the business to prevent future legal claims and convey the potential buyer for a big investment.

On the other hand, buyers should investigate the background, financial records, assets and legal obligations before signing the agreement. It is good to hire a professional business broker or commercial solicitor to streamline the due diligence process. These are the first few employer responsibilities before entering into an entrepreneurship journey.

2. Including Parties to the Agreement & Business Description

When drafting a document, ensure you mention both parties, i.e the buyer and the seller. The details include the full legal names, their registered business names, and ABN or Australian Business Numbers. If a company is the seller, use the company's full legal name and ACN.

The subpart of this section includes 'recitals' or 'background' that sets out the agreement's context. For instance, the seller can provide a key reason for selling a specific business, or the buyer can mention their intention when investing in a profitable business for sale in Gold Coast.

The agreement should also include what is being sold to the potential buyer. This includes the business name, type, trading history, location, and, of course, registration details.

3. Setting The Price & Payment Terms

There is no denying that setting the business value during the sale is a crucial decision. Since it is a highly negotiable aspect in the document, it is imperative to stay realistic when setting your price. As a responsible seller, you can always reach out to your financial advisor to carry out a detailed business valuation process.

The sale price is determined based on the goodwill and tangible assets, along with any intellectual property, that add up to the overall value. You should add a clause on the purchase price in the business sale agreement. This clause comprises:

The Total Price:

The complete/full amount payable by the buyer

Deposit Amount:

It is the upfront amount paid by the buyer to ensure they are serious about the investment. A solicitor keeps the deposit to establish trust until the sale of the business.

Payment Schedule:

This outlines the time of each payment, especially if a buyer opted for an instalment option.

Purchase Price Allocation:

Both parties should agree on how the purchase price is distributed to the different assets being sold. This covers a heavy tax implication for both parties.

4. Conditions Precedent

There are certain conditions that must be complete before the final sale. Meeting the following conditions precedent on time is crucial:

• The buyer must secure funds to purchase the business
• The landlord is agreeing to the lease transfer after the sale of the business.
• Licences and permits to operate the business seamlessly

Each and every condition should have a proper deadline to prevent disputes or termination of the agreement.

5. Assets Included in the Sale

The Business Sale Agreement should include both tangible and intangible assets that are being sold. Tangible includes the stock or inventory, cash, plant and equipment, vehicles, office furniture and fit outs.

On the other hand, intangible assets include the trade secrets, trademarks, customer databases, domain names and industry knowledge. These help the potential buyers to choose the best business for sale in Australia within their estimated budget and preferences.

Thus, it is imperative to mention which assets are included in the sale and which are excluded. You can create a proper list of assets which can be transferred to the buyer.

6. Transfer of Employees Clause

This is a key clause in the Business Sale Agreement. You should include the details of transferring employees along with their terms to streamline the selling process. The most important part is that both parties must ensure that they adhere to all legal obligations related to employees and their entitlements. Ensure you answer these questions:

Will the buyer offer a job to all or some of the seller's employees?

Will the annual leave, long service leave and other entitlements be transferred with the sale?

Who is responsible for unfair dismissal claims?

In short, the agreement should clearly mention the status of the business's employees to avoid legal challenges after the purchase.

7. Transfer of Customer and Supplier Contracts

It is a seller’s responsibility to transfer existing customer and supplier contracts to the buyer. This can help your business sell faster at the best price. Budding entrepreneurs and small businesses always look for business opportunities in Gold Coast that offer a loyal and reliable customer database and supplier contracts.

However, some contracts may need the consent of the third party supplier before the settlement. Thus, you should add special conditions in the contract to avoid disputes. This will also streamline the supply chain process if for the new owner.

8. Including Warranties & Indemnity

Warranties are legally binding promises in the agreement made by the seller. If these claims are not true, it can lead to a breach of warranty. False information about your business might drag you into a serious legal problem. A buyer has the right to seek compensation against the false claim. Thus, pay attention to warranty time limits and claim limits.

An indemnity is a legally binding agreement where the seller agrees to pay the other party for certain losses. This is an added benefit to the buyer.

9. Restraint of Trade Clause

Under this, both parties agree on the condition that restricts the seller from starting or competing with the business for a period of time in a specific area. This can prevent market confusion and brand dilution in the market.

However, this clause must be reasonable and can't be indefinite or have an unlimited scope. This gives peace of mind to the buyer and helps them make a quick business investment decision.

10. Maintaining Confidentiality

The information added in the Business Sale Agreement is highly sensitive for the seller. Thus, it should be kept confidential until the sale is complete. You should clearly mention the confidentiality clause to ensure that none of your business information goes out in the market without your consent.

Wrapping Up

Creating a perfect, legally binding Business Sale Agreement can protect the rights and interests of both parties. The document should include key details of the business, purchase price for negotiation, assets list, employee transfer arrangements, and other clauses for a smooth and lawful business acquisition.