Buying or Selling a Business – What Documents Do We Need?

Written By:Andrew R. Heck

Andrew R. Heck

Andrew Heck is a Business Law and Real Estate Law Attorney.

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If you are looking to buy or sell a business, one of the most important initial steps will be for you and your attorney to consider what documents will be needed to carry out the transaction and best protect your interests. The exact documents needed may vary depending on the circumstances, but here is a quick overview of a few of the most common and typically most important documents:

• The Purchase Agreement. The purchase agreement includes the basic terms of the transaction, including the purchase price, the payment terms, representations and warranties, and conditions for closing. The purchase agreement may be structured either as an asset purchase agreement (the buyer purchases the assets of the business, but not the business entity itself), or as a stock purchase agreement or membership interest purchase agreement (the buyer purchases the business entity, including its assets).
• The Promissory Note. The Promissory Note is a document signed by the buyer, in which the buyer promises to make one or more payments to the seller. This document specifies how much will be paid, when the payments will be made, and how much interest will accrue.
• The Security Instrument. The security instrument is a document that helps protect or “secure” the seller’s right to receive the promised payments from the buyer. Using this document, if the buyer fails to make the payments as promised, the seller will have an opportunity to take back the property from the buyer and sell it to a third party in order to satisfy the debt. Depending on the circumstances, the security instrument should be structured either as a security agreement (the seller has the right to take back the assets), or as a stock pledge agreement or unit pledge agreement (the seller has the right to take back the stock/units of the business entity). Additional steps should be taken in order to “perfect” the security, which may allow the seller to gain “priority” over other creditors.
• The Record of Transfer. On the day of closing, the seller should provide the buyer with documentation showing that the transfer has been completed and that the buyer is now the owner of the assets, the corporation stock, or the LLC units. Depending on the circumstances, this record of transfer should be structured either as a bill of sale (reflecting the buyer’s new ownership of the assets), or as a stock certificate or unit certificate (reflecting the buyer’s new ownership of the stock/units of the business entity).

These are just a few of the key documents that may be needed to properly conduct the transaction. Additional relevant documents may include disclosure schedules, noncompete or non-solicitation agreements, assignments of existing rights, approvals or consents of third parties, approvals or consents of the members of the business, and a new or amended shareholder agreement or operating agreement. To best protect your interests, it is important that each of the relevant documents be carefully considered and drafted in a way that accounts for the circumstances at hand and any particular legal or factual concerns raised.