Business Purchases and Sales - Other Considerations
Today, we wrap up our series on Business Purchases and Sales by exploring some of the additional complexities you might encounter during the process.
Non-Compete and Non-Solicitation Agreements
A non-compete agreement details specific circumstances under which the seller cannot engage in certain business activities after the sale is completed. These agreements should address three specific issues: duration, locality and specific types of business activities covered.
For example: In the sale of a used car dealership, the seller could be prohibited from selling used cars directly to retail consumers for 6 months in an area within 100 miles of the location of the business she sold.
A non-solicitation agreement may prohibit a seller from contacting customers, and in some cases, suppliers, for a specified period of time after the sale.
Escrow Holdback is a type of guarantee under which the buyer withholds a portion of the proceeds of the sale from the seller until certain conditions are met after closing. Common examples include debts the seller agrees to pay or services that the seller agrees to perform following the closing date. These items should be detailed in the Purchase and Sale Agreement.
Seller’s Continued Role in the Business (Contractor Consultant) There are a number of ways the seller can remain involved in the business after closing. One of the most frequently encountered, especially in smaller businesses, is for the owner to join the new entity as an employee. Serving on the Board of Directors (for a business with shareholders) or serving as a consultant are also options. In any of these situations, the details of the new business relationship should be reduced to writing in a signed instrument.
Reach out to us today if you want to purchase or sell a business or if you have been harmed because you negotiated such a deal and found out the hard way that the documents you relied upon to close the transaction were not adequate to the task. . We hope you’ve enjoyed this series.