Preparing contracts
Firma Consulting draws up contracts for the purchase or sale of businesses.
In earlier centuries, even well into the twentieth, businesses were exchanged through a handshake and a simple written agreement. We could refer to this as a purchase agreement, since both parties had a similar understanding of each main point and intended to fulfil the agreement once they had finalised it. If any dispute arose between two such parties, they usually solved it themselves, without external professionals.
These times have long passed. Nowadays, agreements on buying or selling a business are prepared in the most exacting, painstaking manner possible. As the reasons for this evolution were probably numerous, only two of them will be mentioned here, although it cannot be presumed that they tell the whole story. In the first place, in recent times more and more people seem eager to interpret to their own advantage any misunderstanding that might occur, and even themselves to create a misunderstanding which they then exploit in order to free themselves of an orally expressed obligation. What is more, they now find it easierthan in the old days to flee from obligations. Worse still, this sort of behaviour now characterises some of those whom the public expects to be ethical in business transactions.
Secondly, all human activities have become considerably more complex than before. We should keep this in mind, as well as being aware of many other negative developments that are facts of modern life. We therefore ought to enter into the drafting of a contract on the buying or selling of a business firm with the perspective that the parties may conceivably seek not to abide even by a signed, binding purchase agreement. This means that we will have to place heavy emphasis on precision when drafting the contract.
In the transaction of buying a business, the main agreements to be made are the following:
Purchase offer. In many cases a purchase offer is made, which is then agreed on and signed by both parties.
Purchase agreement. A purchase agreement is always part and parcel of buying a business. Considering today's significantly changed environment, such an agreement needs to be as precise and detailed as possible, in order to avoid any kind of misunderstanding or potential loss. The agreement will normally contain reservations concerning due diligence, financing and so forth.
Final sale agreement. The final agreement is a simple contract which cancels any reservations (concerning for instance due diligence, financing, etc.). At the same time, the purchase price is settled and the business operations are transferred to the buyer.
When preparing the business purchase agreement, care must be taken to specify who will take part in the transaction and to pinpoint and define the enterprise and/or assets to be traded. It may sometimes be desirable to clarify the description of what will be bought through accompanying documents; these can contribute to greater precision in the agreement. An exact, clear specification of purchase price and any terms of payment is of the utmost importance, in addition to all of the other pertinent matters in a business purchase agreement. There should be a clear description of how disputes are to be resolved, if any should occur. Finally, each party must ensure that those signing the purchase agreement have the express authorisation to do so, if they are representing other individuals and/or a company.
Under no circumstances should any exception be made to retaining a specialist for preparing the purchase agreement and for being present when it is signed. This specialist may either be a lawyer or a certified business broker. Both of the parties need to retain such a specialist not only for drafting and/or thoroughly reviewing every agreement relative to the business purchase prior to the signing of the agreement, but also for being present at its signing and, lastly, for being present at the signing of the final sale agreement.