If you’ve made it to the purchase agreement, you’re in the home stretch – which is all the more reason to remain focused. Unlike the more flexible letter of intent, a purchase agreement is a binding document that spells out the terms and conditions of a sale. If a seller or buyer has concerns, it’s important that they address them before the document is made official. This isn’t the time to skimp on detail.
Price and Purchase Structure
At this point, buyer and seller have reached a price that is satisfactory to both parties. However, it is also necessary to describe how the purchase will be structured. This section should lay out details such as how the deal will be financed, how and when payments will be made, and which assets will be transferred. Is it an all-cash deal or will the seller carry a note?
Representations and Warranties
One of the most important parts of the agreement, representations and warranties assure both parties that the facts being represented are and will remain accurate. Mainly this serves to protect the buyer. However, the owner of the limo service for sale has a strong incentive to disclose every possible part of the business – from taxes to intellectual property – as anything excluded could be grounds for a breach of contract lawsuit later down the road.
Indemnification is perhaps the most misunderstood, and disliked, part of the purchase agreement process. This section defines the possible damages, expenses, losses, and liabilities that could be incurred by a party – generally the seller – prior to closing, and how the other party is to be compensated for those issues. Money is usually set aside in an escrow account to pay for some of the damages should they occur. Both buyer and seller will benefit from clearly defining indemnification.
This section lays out the many particulars of a sale. How will the assets specified in the sale be transferred? Will the new buyer receive rights to the company’s name? What about the domain name of the company’s website? Will property or employees come with the business? Will the seller stay on for a designated period to train the new owner? Every step of the transition process should be explained in painstaking detail in order to avoid disagreements that could result in a disrupted deal or a later lawsuit.
Covenants dictate how the seller will behave in the interim before the close of the sale. For instance, a buyer may specify that the seller refrain from hiring new employees or require that he or she make repairs to vehicles or property. Often times, the buyer will ask that the seller continue to operate the business in a manner consistent with past practice.
This is a final checklist of tasks that must be completed before both parties can sign the final documentation. Closing conditions for typical limousine companies for sale may include items such as permission from a landlord, licenses and certifications for drivers, or consent from vendors.
Of course, the above descriptions are really just a reader’s digest version of a real purchase agreement. A truly comprehensive purchase agreement has the capacity to protect both buyer and seller if a deal falls through or conditions change. In contrast, a document missing essential elements may cost you the deal or, worse, result in litigation. A professional transaction attorney can help draft an agreement that protects you and your interests as you take this important final step.