The Sales Agreement For A Business

The sales agreement for a business is a fundamental document in the business’s sale. It materializes the agreement between the seller and the purchaser on the business’s future sale and commits the two parties to carry out the transaction.

The drafting of the trade agreement for the sale of a business is therefore of particular importance. Indeed, in the event of omission of certain information, the sale may be declared void.

Drafting of the Sales Agreement for the Business

The sales agreement must be drawn up in writing (authentic deed or under private signature). The original act is required when the sale also includes the assignment of the commercial lease.

The content of the Sales Agreement

Article L 141-1 of the Commercial Code provides that a certain amount of mandatory information must be included in the sales agreement for a business.

This information is as follows:

• The name of the previous seller, the date and nature of his deed of acquisition, and the price of this acquisition for intangibles, goods, and equipment;
• The statement of the privileges and pledges encumbering the fund, including those taken by the previous owners;
• The turnover and the operating results realized during the three financial years preceding that of the sale (this number is reduced to the duration of the possession of the fund if it was less than three years);
• The lease, date, time, name, and address of the lessor and the assignor are applicable.

The omission of any of the information listed above may invalidate the sale of the business. The purchaser must make the request for nullity for this reason within one year.

Then, the sales agreement for the business must also specify:

• The identity of the assignor and the purchaser,
• The precise description of the company,
• The sale price of the company,
• The date on which the final sale is scheduled,
• The security deposit due by the purchaser,
• Any conditions precedent,
• The distribution of costs and charges between the transferor and the purchaser.

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The origin of the Business sold

The sales agreement must specify the origin of the business:

• The name of the previous seller
• The date and nature of the deed of acquisition
• The price of this purchase

The decomposed price must be decomposed for intangibles, goods, and equipment. When the business has not been purchased, for example, when the seller created it or received it as a gift or inheritance, the indication of the origin of the property is not obligatory. However, it is customary to mention the date of creating the business or the deed which gave it ownership.

The security deposit provided for in the Sales Agreement

When signing the sales agreement for the business, the purchaser must pay a security deposit.

The amount of this security deposit is equal to a percentage of the sale price of the business, generally between 5% and 10%. This deposit will be deducted from the sale price of the company when the final deed is signed.

The signing and recording of the Sales Agreement

The purchaser and the transferor sign the trade agreement for the sale of business. It does not need to be subject to tax registration to be valid.

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The suspensive clauses provided for in the Sales Agreement

The sales agreement for the business may contain conditions precedent, that is to say, events the realization of which, or the lack of completion, may result in the lapsing of the sale of the business.

For example, it is common to obtain bank financing by the purchaser as a condition precedent in a sales agreement. If the buyer does not manage to get the funding under the conditions and on time, the sale does not occur.

The signing of the final deed of sale of Business Assets

In the sales agreement for the business, the parties have normally provided for the date on which the sale will be final. In the absence of lapsing of the deal due to a suspense clause, the seller and the purchaser sign the business’s last act on the scheduled date.

If one of the parties have signed the compromise renounces the sale of the business, the other can force it to do so by taking legal action, and damages may be claimed.

Compromise of sale / unilateral promise of purchase: what are the differences?

In the context of the transfer of a business, the sales agreement and the unilateral promise of sale are two contracts with very different consequences for the parties to the transfer.

The sales agreement is a synallagmatic promise (the two parties commit), while the unilateral contract is a commitment made by only one of the parties to the transfer.