Essential content in a business purchase agreement

In an acquisition transaction, the signature of the sale-purchase agreement takes place after the due diligence and the pertinent negotiations between the parties.

In Spain, the law defines this contract as an agreement whereby one of the contracting parties undertakes to deliver a commercial or industrial unit (the company) and the other commits to pay a determined price for it. The content of the Business Purchase Agreement may vary depending on the case, sector, type of buyer and other circumstances; however, there are a series of clauses ensuring the successful execution of the transaction.

Essential clauses in a Business Purchase Agreement

Identification of the Parties

It is advisable to determine the identity of the contracting parties and verify they have the sufficient legal capacity to assume the obligations established in the contract by its signature. This clause becomes particularly relevant when the contracting parties act through their legal representatives or other agents.

Transaction description

The facts and reasons for the transaction, including the following points:

  • A description of the activities of the company object of the sale
  • A Letter of Intent to the firm
  • In the case of multiple sellers: their identification and the number of shares they own
  • A mention of a possible audit execution or due diligence by the buyer before signing the sale

Purpose of the sale

Scope of the assets object of the transaction, usually as a descriptive list included in an appendix.

Price and method of payment

Indicates the price to be paid by the buyer and the financial metric chosen to value the company. Since this price of the company target may be subject to adjustments, it is essential to define the criteria that determine it.

Representations and Warranties

They include the guarantees and responsibilities of the contracting parties.

For the seller, this section consists of a series of statements regarding the company’s financial position, its legal, fiscal, and labour obligations, the absence of litigation or pending claims, and the ability of the seller to sell the company or business. These affidavits usually relate to any contingencies detected during the due diligence. In this clause are added covenants and conditions to guarantee that a loss of value of the company will not occur.

The buyer, on his side, commits to pay the price. Clauses for earn-out payments, whereby the buyer undertakes to pay a complementary amount if the company results reach a certain level after taking control, can be added.

These contractual mechanisms allow the buyer to claim damages in the event of inaccuracies, omissions, or misrepresentations in the company’s status.

Additional clauses

They are related to confidentiality, non-competition, and non-solicitation. These clauses ensure that both parties will maintain the confidentiality of the transaction throughout the process. Likewise, the seller is forbidden to compete and recruit employees.

High-penalty provisions usually accompany this clause to dissuade sellers from non-compliance.

Other clauses

Limitations of the seller’s liability, seasons, transaction resolutions in the case of Material Adverse Change, shareholders agreement, agreements concerning the management team contracts and the Commercial Tenancy Agreement.

Clauses about notifications

Assignment of Contract, partial disability, governing law and jurisdiction, among others.

Lastly, the appendices are part of the content of a business purchase agreement.

If you have additional questions regarding the clauses of the business purchase agreement,

Please note that this article is not intended to provide legal advice.

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