When preparing to sell a business, owners often focus on the price and finding the right buyer. But the contracts that keep the business running deserve attention too. Reviewing them early can help avoid surprises as closing approaches.
Will Your Key Contracts Continue After the Sale?
Start with your main customer, supplier and franchise agreements. A buyer will want to know whether these relationships can continue after the sale.
The answer may depend on how the sale is structured. In an asset sale, contracts may need to be assigned to the buyer. In a share sale, the company generally remains a party to its contracts, but a change-of-control clause may still require consent.
Check for consent requirements, termination rights, expiry dates and renewal options. Do not assume that a longstanding relationship means the other party will automatically approve the sale.
Pay Special Attention to Your Lease
If your location is important to the business, your lease may be one of its most valuable agreements.
How much time remains on the lease? Are there renewal options, and can the buyer exercise them? Does the landlord need to approve an assignment or a change in ownership?
Also check whether you have personally guaranteed the lease. The sale does not necessarily release that guarantee. Any release should be expressly addressed with the landlord.
Review Contracts Well Before Closing
Gather complete, signed copies of your agreements, including amendments and renewals. Have your lawyer identify which consents are needed and any issues that should be resolved before closing.
Obtaining consent can take time. A landlord or another contracting party may request information about the buyer or seek changes to the agreement.
An early review gives you time to address these issues while you still have room to negotiate. It also helps give the buyer confidence that the business’s essential agreements can continue after the sale.
Preparing to sell a business involves more than negotiating a purchase price. A review of your commercial agreements can help identify issues early and minimize delays during the transaction. If you are considering the sale of a business, contact our Business Law Team to discuss how we can help.
At Mills & Mills LLP, our lawyers regularly help clients with a wide range of legal matters including business law, real estate law, estate law, employment law, health law, and tax law. For over 140 years, we have earned a reputation amongst our peers and clients for quality of service and breadth of knowledge. Contact us online or at (416) 863-0125. The material provided through the Mills & Mills LLP website is for general information purposes only. It is not intended to provide legal advice or opinions of any kind.
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