In Post #31, I talked about how the purchase agreement can protect you, the seller against future claims and liabilities against your company. Now, I need to show you what an actual business purchase agreement looks like. Since you know that you have certain protective terms and conditions to include, you need to know where to put them. Yes, this document can protect buyers and sellers. However, it does so much more than that. Essentially, the purchase agreement outlines and answers everything about the business’s sale.
“I didn’t need to know everything in the document. That’s why I hired people. It’s their job to make sure I’m protected.”Click to tweet
I’ve seen many, many business purchase agreements over the years as a CFP®, as a CEPA, and as a business owner. Yet, I am still surprised and amazed at the length of these documents. The longer I’m in business, the longer these documents seem to get. A final business purchase agreement will likely include 10 to 20 different types of agreements, from employment agreements to non-solicit agreements to consulting agreements. Easily, the final stack of documents could include 200 to 300 or more pages of legal jargon. That’ll make you want to give up pizza. It’s that depressing.
I remember the first business purchase agreement I held in my hands. Like any seller, I took out a highlighter and commenced to reading every line. After about 15 minutes, I surveyed my markings only to notice that just about every page had a note or a question. Laughing to myself, I realized that I didn’t need to know everything in the document. That’s why I hired people. It’s their job to make sure I’m protected.
However, I do want to understand what I’m signing. I don’t want to be so worn down by the due diligence and sales process that I sign whatever is placed in front of me. After all, if I go to court over something related to my business or its sale, the attorney on the opposing side will say, “Mr. Goodbread, did you ever read this document before you signed it?” If I haven’t read it, nothing I say matters after I say, “No” or “Not thoroughly.”
Yes, you will rely on your attorney to handle most of the terms and conditions. However, you need a cursory knowledge of what should be or could be in the business purchase agreement. That way, you can review it for mistakes and gain a thorough understanding of it before you get to the closing table. In no particular order below, I’ll provide a list of sections that can be included in a business purchase agreement. Some lawyers will combine the sections I’ve listed, or they’ll include information I’ve put in one section in a different section. But essentially, each segment of the purchase agreement explains the who, what, when, where, how, and how much of the business sale.
Appearing at the beginning of the document, this section provides the following information about buyers and sellers:
Also known as the Sellers’ Representations and Warranties, this section provides a detailed description of the following things:
Absolutely vital to the purchase agreement, this section identifies the following:
Hinging upon the description of sellable assets, stocks, and items, this section can include the following:
Once the document identifies what is and is not included in the business sale, the purchase agreement will outline the following:
This section often dictates which party assumes responsibility for the following risks and liabilities before and after closing:
If separated from the Assumption of Risk section, many of the protective clauses I discussed in Post #31 can appear in this section. Look for any:
So that no party runs away from responsibility after the closing, many lawyers will include this section to:
If buyers and/or sellers have engaged a third party facilitator during the sale process, the business purchase agreement will:
Often tied to the Closing section, this segment:
One of the easier-to-understand sections of the purchase agreement, this section:
While many sellers believe “miscellaneous” means “not important,” that is far from the truth. This section can:
Appearing at the end of the document, the buyers and sellers will sign their agreement to the terms and conditions outlined in the document. A representative attorney, banker, broker, or CEPA in attendance at the closing will also sign as a witness and notarize the buyer and seller signatures.
Attached to the purchase agreements, any of these documents can be included in this section:
Whew! I didn’t even list all of the sections that can be included in a purchase agreement, and I’m tired!
After you do your own review, you’ll want to gain insights from your exit team. Everyone – your attorney, your transition specialist, your CPA, your CEPA and your CFP® – will need to be on the same page. But while you’ll need input from each member, you need to designate one person to act as the play caller here to prevent head-butting, frustration, and stagnation.
In my experience, the attorney is best suited to facilitate any changes needed and to make the final call on terms and conditions within the purchase agreement. But if you’re working with a razor-sharp attorney, he/she shouldn’t have ego issues. Instead, he’ll listen to insight from all the other professionals with respect.
With that said, you’ll also need to task another exit team member to play quarterback and keep the ball moving down the field. Just as I usually ask an attorney to step into the coach’s role here, I normally ask the CEPA to fill this position. Oftentimes, he has the knowledge necessary to prevent continuances and keep other team members (buyers’ and sellers’) on task and on schedule.
So friends, we’re in the thick of selling your business. If your team can withstand the due diligence process, you’ll get to the closing table! Join me in the next post!