What can I expect in a Sale and Purchase of a Business Agreement?

A Sale and Purchase of a Business Agreement (SPA) is the agreement between the owner of a business (the Vendor) and a purchaser relating to the sale of the goodwill and assets (both tangible i.e. the physical assets such as equipment and the intangible assets such as good will and any intellectual property)and any stock.  In New Zealand the most common form of agreement which is used is the agreement which is produced by the Auckland District Law Society Inc.

The agreement contains the commercial terms which have been agreed including the purchase price, the amount of any deposit payable, the main terms of any premises lease, a list of the assets which are being purchased, the name of the business, details of any warranty provided in relation to turnover, details relating to any assistance to be provided by the vendor after the settlement date, details of any restraint of trade which will apply to the vendor after the business is sold.

There may also be conditions which must be satisfied within specified time frames before the purchaser is legally obliged to proceed to purchase the business.  These typically include:

• Landlord approval (where the purchaser is taking over a lease of the premises from which the business operates);
• Due Diligence - this allows the purchaser a specified period of time to make detailed investigations about the business to ensure that they want to proceed to purchase; and
• Finance - this provides that the agreement is conditional on the purchaser obtaining the funding they need to be able to fund the purchase of the business.

The agreement also contains general terms relating to the operation of any conditions, what happens if either the vendor or the purchaser breaches any term of the agreement or there is a dispute between them and details of the settlement process.

It is most often the case that there will need to be additional terms added to the standard Agreement for Sale and Purchase of a Business.  These additional terms may deal with matters such as employees, intellectual property, additional vendor warranties and vendor finance.

Whether you are a vendor or a purchaser of a business, it is essential that you obtain professional advice from both an accountant and a lawyer.  The commercial team at Turner Hopkins can help you understand the areas of risk and help you negotiate an agreement which you are comfortable with.