What is a Sale of Business Contract and Why Does It Matter?

by Vanessa Lovie 14th of February, 2025

What is a Sale of Business Contract and Why Does It Matter?

When selling a business, the Sale of Business Contract is one of the most critical legal documents in the entire process. Unlike real estate transactions where contracts are provided upfront, business sales require more negotiation, due diligence, and preparation before a contract is drafted and signed.

This contract outlines the terms and conditions of the sale, protecting both the buyer and seller by ensuring clarity on what is being transferred and under what terms.

What is a Sale of Business Contract?

A Sale of Business Contract is a legally binding document that formalizes the transfer of a business from a seller to a buyer. It details essential elements such as:

The purchase price and payment structure
What assets and liabilities are included in the sale
Lease agreements and transfer of premises (if applicable)
Employee transition and entitlements
Non-compete clauses and warranties
Conditions for completion (settlement period, due diligence, etc.)

This contract ensures both parties are aligned and legally protected throughout the business transfer process. Yould should have your legal documents organised before you decide to sell a business.

When is the Contract of Sale Created?

Unlike real estate transactions where a contract is available at the start of negotiations, a business sale contract is typically created after an offer has been made and accepted. This is because selling a business involves complex assets, including goodwill, equipment, inventory, intellectual property, and possibly lease agreements. The contract is drafted based on the agreed-upon terms between the buyer and seller.

A Heads of Agreement (HOA) or Term Sheet is often used before drafting the full contract to outline the key terms of the sale. This is not generally legally binding but helps both parties agree on the main conditions before a solicitor prepares the final contract.

To understand the sales process, its a good idea to read the Bsale selling a business guide.

Who Prepares the Sale of Business Contract?

The seller should engage a commercial solicitor experienced in business sales to draft the contract. Prior to listing a business for sale, the seller should have spoken with a solicitor to help prepare the business for sale, and outline their role during the sales process.

A Sale of Business Contract is not a generalised document. The contract must be tailored to the specific business, covering assets, liabilities, and obligations that could impact each party.

Aspect Legal offers a Rapid Contracting Process designed to streamline contract preparation and ensure sellers have the correct legal documentation to protect their interests. Unlike traditional legal processes that may cause delays, this approach focuses on practical and creative solutions to overcome obstacles and facilitate smooth deal closures. It provides comprehensive legal support, including due diligence, negotiation, and contract finalization, all while maintaining an assertive yet collaborative strategy to secure agreements that benefit all parties.

Having a solicitor involved early in the process can prevent costly legal disputes and ensure the contract accurately reflects the sale terms, reducing the risk of misunderstandings or complications.

When is the Contract Provided to the Buyer?

Unlike real estate, where contracts are available from the beginning, a business sale contract is usually provided once negotiations are well underway. The buyer must complete due diligence to verify the business's financials, assets, and legal standing before committing to the purchase.

Once the buyer is satisfied with the due diligence, the seller’s solicitor prepares the contract, which is then reviewed by the buyer’s solicitor. At this stage, negotiations may occur to amend or clarify terms before signing.

How Can a Sale of Business Contract Be Amended?

Negotiations don’t stop once the contract is drafted. Buyers may request changes based on their legal and financial review. Common amendments include:

Adjusting the settlement period
Including or excluding specific assets
Changing payment structures (upfront vs. instalments)
Modifying lease transfer conditions
Clarifying post-sale obligations (e.g., handover training or warranties)

Both parties must agree to any changes before signing the final version. The contract may go through multiple drafts before both solicitors approve the final terms.

Why is a Sale of Business Contract So Important?

A well-drafted contract protects both the buyer and seller by clearly defining the expectations, responsibilities, and conditions of the sale. Without a solid contract, disputes can arise over what was included in the purchase, liabilities, or post-sale obligations.

Engaging a business solicitor is essential to ensure that the contract accurately reflects the sale terms and provides legal protection. As discussed in Why You Need a Lawyer When Selling a Business, a solicitor ensures that the contract is fair, enforceable, and aligned with Australian business laws.

The Sale of Business Contract is a critical document that legally binds both parties to the agreed-upon terms. It is not a one-size-fits-all document but a tailored agreement that reflects the specifics of the business being sold.

If you’re considering selling your business, ensure you engage with a business solicitor early to navigate the legal complexities and avoid costly mistakes. Understanding the contract process and having expert legal support can help ensure a smooth and successful sale.

Tags: selling a business legal