Buying or selling a business is a complex venture that requires buyers and sellers to adhere to specific legal processes, and necessitates careful planning. Sales agreements are legal documents that outline the terms and conditions associated with the transaction and enable a meaningful evaluation of all company assets and liabilities.
The type of sales agreement you use will depend on the reason for the sale, the timing of the sale, the performance of the business, and its structure. The following are some of the most commonly used sales agreements for buying and selling businesses.
Asset Purchase Agreement
An asset purchase agreement (APA), also known as an asset sale agreement or business purchase agreement, is a written document that formalizes the sale of the significant business assets of a business. It outlines the structure of the agreement, price, exclusions, and warranties.
There are many types of assets that can be purchased, including:
- Equipment
- Licenses
- Intellectual property
- Real estate properties
In an asset purchase agreement, the buyer agrees to purchase certain assets from a company but the selling entity retains liabilities, and retains the ownership of the corporate entity selling the assets. This often leads to the selling entity thereafter going through a “wind down” or “dissolution” to cease operations and close the business. It can be advantageous for buyers and sellers to enter into an APA when they want flexibility in the transaction. Furthermore, an APA may be part of a more significant transaction, such as a merger or acquisition.
Share Purchase Agreement
A share purchase agreement transfers ownership of shares (also called stocks) in a company from a seller to a buyer. A share (or stock) is a unit of ownership in a corporation (xxx, Inc.) that is divided up among shareholders and includes an ownership interest in the profits and losses of the corporate entity.
A share purchase agreement generally includes information about:
- Who is selling the shares
- Who is buying the shares
- Number of shares being sold and their value
- The type and class of the shares being sold
- Company the shares are being transferred from
- Payment details, such as the amount of the down payment and the date of closing
A share purchase agreement can be used to sell shares from one shareholder to another shareholder in the same company, or to an outsider who wants to join the ownership of a company. It is important to review the Shareholder Agreement or the Articles of Incorporation regarding and rules or restrictions on selling shares.
Membership Sales Agreement
Members of a limited liability company (LLC) can buy or sell their interest in the LLC (and thus their interest in the LLC’s assets and liabilities) using a membership sales agreement. Sale of interest in an LLC can happen between current co-members of the LLC, or to an outsider who wants to join the LLC. Sometimes membership sales are required if a member is forcibly removed from the LLC. An LLC membership purchase agreement can be used for any transaction involving the exchange of money for the surrender of LLC interests.
An LLC’s articles of organization, certificates of formation, or other founding documents describing ownership, organization, and voting rights may need to be amended if the LLC has been in operation for a while.
A membership sales agreement specifies how much of the seller’s interest is being transferred, the purchase price, how and when money will be transferred, the closing date of the sale, and whether consent is required from other LLC members.
Our Business Attorneys Can Help with the Sale or Purchase of a Business
No matter how confident you are in the valuation and conditions of a sale, you should not attempt to buy or sell a business on your own. Selling or buying assets or an interest in a business can have significant tax and estate planning ramifications.
When so much is at stake, it is always wise to enlist the help of legal professionals. An experienced business attorney can protect your best interests throughout the transaction.
At Morefield Speicher Bachman, LC, our business law attorneys pride themselves on helping businesses efficiently achieve their goals and resolve disputes. If you have questions or need guidance on buying or selling a business, call (913) 839 2808 today to speak with one of our business law and litigation attorneys.