After negotiations with the seller, the prospective business owner must draw up what is called a Purchase and Sale Agreement. This agreement outlines the terms and conditions of a deal, and basically ensures that the deal is represented on paper as closely as possible.
Though some bookstores and websites sell standardized forms, it is very important that at this stage a lawyer is secured to draft, or at the very least review this document to determine legality and potential loopholes.
Purchase and Sale Agreements typically contain the details of the deal, including the price to be paid, how it will be paid, the assets and inventory that will come with the business and who is liable once the closing occurs. Purchase and Sale Agreements should also address how the business will be run prior to the transfer of ownership. It is the seller’s responsibility to be truthful in representing their business, and it is the buyer’s responsibility and right to know everything there is to know about the business. This document is meant to ensure that every aspect of the business is clearly spelled out, and should therefore include all background information.
This legally binding document contains risks for both the seller and the buyer, so the question of liability is an important one. If, for example, the deal closes and the buyer assumes liability for all aspects of the business, any litigation brought against the company for an incident occurring under the old owner will also be the responsibility of the new owner. There are countless issues like this one hidden within the lines of a Purchase and Sale Agreement, and as such, the prospective owner should read the contract completely and obtain legal advice.
Because the Purchase and Sale Agreement is a legally binding document, there are a number of issues for which a potential business owner should consult a professional for advice and guidance. There are many risks associated with signing, so any potential owner should be ready any wary when entering this stage of the business purchasing process.
