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Selling your business represents a significant milestone, and getting the sale contract right matters more than most business owners realise. Many business sales that seem straightforward during negotiations end up in disputes or payment problems because the contract didn't capture what both parties actually agreed to, or failed to address situations that inevitably arise after handover.
The contract isn't just a formality that follows the commercial deal. It's the framework that protects your interests, clarifies everyone's obligations, and provides certainty when memories of verbal agreements start to differ six months after settlement. Let's work through what needs to be in your business sale agreement to help the transaction run smoothly and hold up long after you've handed over the keys.
Essential elements every business sale contract should address clearly:
Invest time in thinking through what's actually included in your sale before you start contract negotiations. Work with your accountant and legal adviser to identify all the assets - tangible and intangible - and clarify what's transferring and what you're keeping. Consider how the handover will work in practice, what you're comfortable warranting about the business, and what timeframes suit your situation. The clearer you are about these elements before drafting begins, the more likely the contract will reflect a deal that actually works for everyone. A well-structured agreement reduces stress during what can be an emotional transition and helps you move forward with confidence.
This seems straightforward until you're six months past settlement and there's a genuine disagreement about whether the customer database was included or whether the business name extends to the social media accounts.
A complete business sale contract itemises:
Tangible assets like equipment, vehicles, stock, furniture, and fixtures. Be specific about condition, age, and what "as is" actually means. If particular equipment is excluded, say so explicitly.
Intangible assets including goodwill (the business's reputation and customer relationships), intellectual property (trademarks, patents, copyrights), business names and domain names, proprietary systems or processes, and customer/supplier lists. These often represent significant value but get overlooked in basic contracts.
Business contracts and relationships such as supplier agreements, customer contracts, and lease assignments. The contract should clarify which agreements transfer automatically, which require third-party consent, and what happens if that consent isn't obtained.
Staff and employment arrangements—who's transferring, on what terms, and what happens to accrued entitlements. Staff Transfer arrangements in NSW need to comply with fair work obligations, and these details matter for both parties' liability exposure.
If something isn't specifically listed, you can't assume it's included. This is where disputes start, and they're entirely preventable with clear drafting.
Payment structures vary significantly based on the business, the buyer's situation, and the level of risk each party is comfortable with.
Upfront payment at settlement provides certainty for sellers but requires buyers to have full financing arranged. The contract should specify the exact settlement amount, payment method, and what happens if funds don't clear.
Deferred payments or instalments spread the buyer's financial commitment but create ongoing obligations. These arrangements need clear documentation about amounts, dates, interest rates, and what security the seller has if payments stop. A properly documented promissory note or loan agreement, possibly registered on the Personal Property Securities Register, protects the seller's position.
Earn-out arrangements tie part of the sale price to the business's future performance. These can bridge valuation gaps in negotiations but they're complex. The contract needs to specify exactly how performance is measured, what financial records the buyer must provide, how disputes about calculations get resolved, and what happens if the business is materially changed after sale.
Security for payment matters when the full price isn't paid at settlement. Options include director guarantees, bank guarantees, mortgages over property, or retention of certain business assets until payment is complete. The contract should document these arrangements clearly.
Would you like to discuss payment structures that suit your specific circumstances? Finding the right balance between seller protection and buyer flexibility helps transactions complete smoothly.
Warranties are statements about the business's condition at the time of sale. Indemnities allocate responsibility for specific risks. Both serve important but different purposes.
Common warranties in business sales include confirmation that:
Warranties give the buyer confidence and create a pathway for compensation if significant undisclosed issues surface. From a seller's perspective, you're confirming facts you already know to be true, but it's worth ensuring you're not over-promising.
Indemnities go further - they're promises to cover specific costs or losses. For example, a seller might indemnify the buyer against any tax liabilities that relate to the pre-sale period, or any employee claims for entitlements that should have been paid before settlement.
The contract should also address warranty limitations - how long warranties apply, whether there are financial caps on claims, and what disclosure qualifications exist. These balanced protections help both parties move forward without fear of unknown risks.
The period immediately after settlement often determines whether the sale succeeds or becomes frustrating for everyone involved.
Seller's ongoing involvement needs clear terms if you're staying to help transition clients, train the buyer, or provide operational guidance. The contract should specify:
Key person introductions matter for businesses where relationships drive value. Whether you're introducing the buyer to major clients, key suppliers, or referral sources, document what's expected and what happens if third parties don't want to continue under new ownership.
Operational handover should address access to premises, systems, passwords, manuals, and other resources the buyer needs. Include specifics about when this happens and what cooperation is required from both parties.
Training and knowledge transfer for specialised systems or processes might be essential. If the buyer needs significant time to learn the business, the contract should document the training commitment, timeframes, and what happens if the seller can't provide it.
A structured handover helps buyers feel confident and sellers feel their effort is recognised and appropriately compensated.
Buyers reasonably want protection from sellers immediately setting up competing businesses or approaching clients they've just purchased. Restraint of trade clauses address this, but they need to be reasonable to be enforceable under NSW law.
Reasonable restraints typically include:
Courts assess restraints based on whether they protect legitimate business interests without unreasonably restricting someone's ability to earn a living. If a restraint is too broad, courts often won't enforce any of it—they rarely "read down" excessive restraints to make them reasonable.
Non-solicitation clauses (preventing the seller from actively approaching clients or staff) are generally more enforceable than pure non-compete restrictions. These can work well alongside reasonable geographic and time-based restraints.
The contract should also address what happens if restraints are breached - whether the buyer can seek injunctions to stop the competing activity, claim damages for lost business, or both.
Getting restraints right protects the buyer's investment without creating unenforceable provisions that add no real value.
One of the most common sources of post-settlement disputes involves who's responsible for issues that relate to the business before it was sold but only surface afterward.
Tax liabilities from pre-sale periods clearly remain the seller's responsibility, but the contract should document this explicitly and include an indemnity protecting the buyer. This might cover income tax, GST, payroll tax, or any other obligations that haven't been assessed yet.
Employee claims for things like underpaid entitlements, unfair dismissal, or workplace injuries that occurred before settlement need clear allocation. Generally, the seller remains responsible for pre-sale employment issues, but the contract should confirm this and address how claims will be handled.
Customer or supplier disputes that relate to pre-sale conduct or contracts might arise after the buyer takes over. The contract should specify who handles these and who bears the financial risk.
Regulatory compliance issues or licence violations that occurred before settlement but are identified later need clear responsibility allocation, particularly where penalties or rectification costs could be substantial.
Undisclosed liabilities represent a genuine risk for buyers. Warranties help, but time limits on warranty claims and financial caps mean buyers can't always recover full losses. Comprehensive due diligence before exchange helps, but the contract should also address what happens when something genuinely unexpected surfaces.
The more clearly these situations are allocated in the contract, the less likely they'll result in disputes that damage relationships or cost significant legal fees to resolve.
Consider a café owner selling an established business to a buyer who wants to build on the existing customer base and reputation. They agree on a price that includes goodwill, all equipment, the current lease, and the business name. The seller will stay for two weeks to introduce the buyer to suppliers and regular customers.
What seems straightforward becomes complicated when details aren't documented. The buyer assumes the social media accounts with 10,000 followers transfer with the business name. The seller created those accounts personally and planned to keep them. The buyer expects the seller to be available full days during the two-week transition. The seller understood it as checking in for a few hours when needed.
The equipment list doesn't specify that the commercial coffee machine has a separate lease that requires the finance company's consent to transfer—consent that might not be granted. The buyer discovers after settlement that the previous owner's company owes suppliers $15,000, and the suppliers are now approaching the new owner for payment.
None of these situations reflect bad faith from either party. They're reasonable people who understood different things from the same general agreement. A well-drafted contract would have specified:
These details don't complicate the deal—they clarify it and prevent disputes that are frustrating to resolve after settlement when positions have hardened.
Getting your business sale contract right isn't about creating legal complications - it's about documenting the real commercial deal in a way that protects both parties and reduces disputes.
Before your contract discussions begin:
List everything being sold down to the specifics - equipment, stock, intellectual property, contracts, customer lists, social media accounts, business systems, and goodwill. Being comprehensively clear at the start prevents costly disputes later.
Clarify payment structures that work for your situation - whether you need the full amount at settlement, whether deferred payments or earn-outs suit your risk tolerance, and what security mechanisms give you appropriate protection.
Think through handover practicalities - how long you're able to assist the buyer, what specific activities you'll help with, and when your obligations definitively end. Clear expectations prevent relationship tension during transition.
Identify pre-sale risks that should be disclosed or addressed - outstanding debts, pending disputes, compliance issues, or other matters that could surface after settlement. Dealing with these in the contract is far easier than dealing with them in later disputes.
Red flags that suggest you need professional contract review:
When to seek immediate advice:
If contract negotiations are underway and you're unclear about key provisions - payment security, warranty scope, restraint reasonableness, or liability allocation - it's worth getting clarity before you sign. These aren't just technicalities; they determine what happens when the unexpected occurs after settlement.
I'm here to help you work through business sale contracts that reflect your actual commercial deal and protect your interests. Ready to discuss your specific situation? Let's make sure your contract supports a smooth transition and gives you confidence moving forward.
Business sales represent significant decisions, and the contract should give you confidence rather than create uncertainty. Let's work through the specific provisions that matter for your transaction - whether you're selling or buying - and make sure the agreement reflects what you've actually negotiated.
In an asset sale you're selling the business assets while the company entity remains yours. In a share sale you're selling the company itself meaning all assets and liabilities transfer automatically. Asset sales give buyers more control and are more common for small to medium businesses. The contract terms differ significantly - asset sales require detailed asset schedules while share sales focus on company warranties. We can work through which structure suits your situation.
Warranty periods commonly range from 6 to 18 months after settlement. Some warranties around tax compliance or undisclosed liabilities might extend for the period during which claims could arise. The contract should specify different timeframes for different categories of warranties. Warranty claims often have notification requirements - if the buyer discovers something they need to notify the seller within specific timeframes to preserve their rights.
This depends on what security and remedies the contract documents. Without proper security you're an unsecured creditor chasing debt through standard legal proceedings. Better contracts include security mechanisms like registered security interests over business assets, bank guarantees, director's personal guarantees, or retention of certain assets until payment is complete. Having these protections documented before settlement is significantly easier than trying to secure payment afterward.
Courts assess restraints based on reasonableness considering whether they protect the buyer's legitimate interests without unreasonably restricting your ability to earn a living. If a restraint is unreasonably broad courts often won't enforce it at all. However this creates uncertainty - you won't know whether you can safely start a new venture until it's tested in court. It's better to negotiate reasonable restraints during contract discussions rather than hoping a court will later find them unenforceable.
Even as is sales typically include some basic warranties about the business's legal and financial position at the time of sale. Buyers need confidence that financial statements are accurate and that there are no undisclosed major liabilities. You can limit the scope of warranties through careful drafting - for example warranting that financial records fairly represent transactions without warranting future performance. The key is being clear about what you are and aren't representing.
The contract should include properly scoped warranties about known liabilities, indemnities for specific risk categories, and clear time limits on when claims can be made. Sellers often include disclosure schedules that list all known issues which then become excluded from warranty coverage. There might also be a financial threshold before warranty claims can be made. Complete protection isn't possible but properly documented warranties and indemnities significantly reduce risk.
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