Basic Tips on Sales Agreement

A sales agreement is a written contract in which a seller promises to trade something that another person promises to purchase. This contract may be used to sell assets, equipment, goods, services, and other things which have a value.

HERE ARE SOME BASIC TIPS ON SALES AGREEMENT:

• Hire a corporate lawyer before appointing an investment banker.
  
  A corporate lawyer can protect the selling entrepreneur during the process of the actual sales and negotiate with an investment banker to lower the latter’s fee, thus allowing an entrepreneur to save a substantial amount of money.


• Organize all the business documents.
  
  When engaging in sales agreement, entrepreneurs should prepare all the paperwork including public records, financial statements, list of liens, and corporate books to make prospective buyers confident that the business they are going to purchase is profitable, viable, and free of any illicit undertaking.


• Discuss the material terms included in the letter of intent (LOI).
  
  The letter of intent, also called as pre-contract, is a document that summarizes the important points of a proposed deal. While this is not a definitive contract, LOI allows the involved parties to see the viability and profitability of a certain business.
  
  And because this contract is not final, entrepreneurs can (and should) still negotiate with potential buyers.


• Develop a comprehensive plan.
  
  Selling a business or anything that has a value requires entrepreneurs to develop a game plan that will include potential problems and ways to resolve these, budget, and certain arrangements that will provide them with benefits.


• Prefer to sell equity (stocks), not assets.
  
  Entrepreneurs should sell their equity and not their assets.
  
  (Equity represents funds which are contributed by owners [also called as stockholders] added with earnings or subtracted with accumulated losses.)
  
  By doing so, the selling entrepreneurs can enjoy advantages: 1.) they can pass their liabilities to buyers, 2.) in C corporation, they benefit from potential tax savings, and 3.) it requires less documentation which means they will pay less legal fees.


• Limit one’s potential liability.
  
  In definitive contract, entrepreneurs should assert only 10 percent (or less) liability. This will limit their liability since selling a business means that certain risks will be passed to the buyers.


• When dealing with private equity buyers, be extra careful.
  
  Since private equity firms are professional companies that buy and sell businesses, these are usually represented by aggressive law firms, thus making it more complex to deal with these entities compared to individual buyers.
  
  To make sure that they can protect their interests and land on the best deal, entrepreneurs should hire corporate lawyers (if possible, hiring business consultants may also be helpful).


• Include a non-reliance provision in the acquisition agreement.
  
  Since buyers acknowledge that they bought a business based on the sellers’ warranties and representations in the definitive contract, a non-reliance provision will protect sellers from being sued by buyers based on any writing and oral statement not included in the agreement.

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