The backbone of any business transaction will be the buy/sell agreement. This document governs how the transaction proceeds from start to finish and is essentially about allocating the risk between the buyer and the seller. It sets out the price, deposit amount, financing details, payment requirements, holdback and potential reductions or offsets are determined. Much of the document includes various forms of covenants, representations, promises, warranties or indemnities agreed to by the applicable party. A complete buy/sell agreement will include key documents that are necessary for the business operations which, by inclusion, form part of the agreement so can be relied upon by a buyer to be complete and accurate. Buy/sell agreements also include representations by the seller as to the present status of the business including employment details, payables, receivables, debts assumed (if any), or even intellectual property ownership. The buy/sell agreement sets out the closing requirements including what documents must be produced, how payments are made, how outstanding matters are dealt with post-closing (if any) and what happens if a party cannot meet its obligations.
The buyer’s lawyer normally prepares the initial draft of such an agreement then circulates to the seller’s lawyer for review. Drafts are exchanged and negotiations often require give and take by both parties. When acting for a buyer, we work to ensure the seller provides the appropriate representations and warranties necessary for our buyer client to be best protected from post-closing surprises. When acting for a seller, we attempt to limit or minimize ongoing requirements post-closing by restricting warranties, indemnities or holdbacks.