Contract Of Purchase And Sales For Business Assets: Fill & Download for Free

Most countries rules on conflict of laws foresee, that lacking a determination of applicable law, the law of the party shall prevail whose performance is characterising the contract. For a purchase and sale agreement that means the seller's law should prevail, as he needs to transfer an asset, while the buyer only pays (which is the case also in other types of contract). For all EU countries e.g. this is set out in Art. 4 para. 1 lit. a of the EU regulation 593/2008 (so called Rome I regulation).This is however hardly relevant as I have never seen a contract that does not explicitly determine the applicbale law, the UN convention on sale of goods may be a good neutral choice here. Otherwise the aforementioned principle may be a good fallback, as general legal principles usually have good reason and in absence of specific circumstances it is a good idea to stick to them. Virtually all jurisdictions will accept an explicit choice of law for a purchase and sale. You may however need to take into account that some mandatory provisions of one party's "home" law may remain applicable whatsoever, particularly when dealing with consumers and there may be issues with the enforceability of an award in specific circumstances. You will usually expect less problems when you use the general principle, in this case using the Seller's law.I would definitly advise to align applicable law with venue. If you're using the UN convention most court systems should be familiar enough with that. You don't want any court to decide on law it is not familiar with, this can be a nightmare. If this can't be resolved rather go for arbitration.

U.S. perspectiveYes, it is highly beneficial to have legal representation when one is buying a business.A lawyer can help the buyer conduct due diligence, i.e., confirm whether the business is structured and is operating as it should be.In addition a lawyer can help ensure that the purchase and sale contract has appropriate provisions, such as those pertaining to:Seller warranties and representationsAny public notices that may be requiredIndemnification by the seller for buyer losses arising from pre-closing transactionsA holdback amount to cover indemnification claimsAs applicable, assignment of all assets and all associated intellectual property rights

Firstly, you should never buy a cafe or restaurant without professional help in the form of legal and accounting advice. The price you pay for these services will often be offset by savings in the negotiations or they will save you a fortune from making the wrong decision made on wrong assumptions. You might even look to engage a knowledgeable business broker in this field to help you or an experienced cafe/restaurant owner who can spot the problems that your rose-tinted glasses will never see.So that’s step 1 in the due diligence process - get professional and experienced help.I have both purchased and sold cafes and restaurants and here are the areas that the professional and experienced help looked at in those transactions:Verify the turnover/takings: The price you are paying for the business is pretty much determined by the volume of turnover that the vendor is saying they are achieving. Your accountant will normally ask for prior year’s tax returns to verify this turnover (although everyone knows that this will be understated). You might also ask for a two week due diligence period, working in the business prior to settlement to verify the turnover. Your experienced and knowledgeable help will be looking at things like coffee bean purchases, staffing costs and seating/covers because these are all good indicators of total turnover.[1] For security, your solicitor may include a performance clause in the contract that specifies the minimum takings of the business over an appropriate period leading up to settlementBe clear about what you are buying: This is a 101 issue for solicitors who will advise you of the pitfalls in buying the business vs buying the assets of the business. Buying the assets of the business is less riskier than buying the business because you will not be taking on the obligations and liabilities of the business. However, sometimes you need to buy the business because certain value may be tied to it like licenses and agreements. Either way, make sure that your solicitor is fully engaged in this process.Ensure that the assets are unencumbered: Make sure that the assets that you are buying are free of encumbrances. i.e. that others like financiers do not actually have claims over them. Again your solicitor will be across this issue and will be asking for verification of ownership or secure some form of guarantees from the sellers.Ensure that the assets are in good working order and are fit for purpose: This is where your experienced restaurateur or cafe owner comes in handy. They will know about the capacity of the equipment, its maintenance status, the tell-tale signs of impending expensive repair and it’s brand/quality to help you understand what you are buying and whether you are paying fair market value. See User-12828854714828252077’s comment [2] .Determine if you are taking over the staffing obligation: The goodwill that you are invariably paying for, includes the relationship that the existing customer base has with the business. This relationship is typically built on the existing staff but with the change of ownership, will you be re-employing the existing staff under new contracts, at least in the short term? If so, then you will need to check the terms and conditions of their current employment as part of the due diligence process. Make sure the outgoing owner pays out all the outstanding wages and benefits (i.e. holiday pay, superannuation obligations, long service leave)Set the makeup of the purchase price: Typical cafe/restaurant sales will involve two key components: (1) the value of the assets/business being purchased and (2) the value of the goodwill (the difference between the purchase price and the value of the assets). Your accountant will advise you of the tax implications of this makeup which usually tries to maximize the value of the assets/business for the buyer because these values can be expensed (depreciated) against future earnings whereas goodwill can not.[3] Unfortunately the seller’s accountant will be advising their client to do the opposite. So this is both a due diligence and a negotiation issue.Ensure the business has current food and liquor licencing certificates and they have been transferred to you: In most jurisdictions a cafe/restaurants needs food safety certificate to operate. You may be able transfer the existing licence or you may have to obtain one for your new operations. Either way it is a critical action on the list of due diligence. If there is a liquor licence attached to the premises, make sure it is transferable and available to you on your first trading day. This can take time so make sure it is addressed well before the proposed settlement date. Your solicitor will usually make the transfer of important existing contracts and licences, a key condition of the sale.Conduct a stocktake and determine values: You will typically be buying the stock on your first day of trading. So you will need to determine the process, the goods that you don’t want to buy (you don’t have to buy everything) and how the goods will be valued. An estimate of the value should be provided during the negotiation period.Check the key items in the contract of sale: Your solicitor will want to ensure that any representations made by the seller are guaranteed by the seller and incorporated as a condition in the contract. Some monies from the sale may be set aside in a trust account as a guarantee of the seller’s performance post-sale. You may also look to insert a restraint of trade clause in the sale contract to restrict the previous owner from operating a similar business within a certain distance for a number of years. Also make sure that business names and social media profiles for the business are appropriately transferred or agreed to be transferred. These issues are well covered by a Victorian Government’s business sale contract checklist.[4]Check out the lease terms: The vast majority of cafe/restaurant sales will not be freehold sales (buying the business + the premises) but will in fact be just buying the business within a leased premises. The lease is the right of tenure for your business and there are critical parts to the lease agreement that can have significant impact on the sale negotiations and your future profitability. You will need an experienced solicitor to help you identify these critical parts and advise you accordingly. Based on my experience, here are the critical parts that I would be looking at to either make sure my tenure was secure or to use in the negotiation process.Lease term: How much more time has this lease got to run in the current term and what is available under future option periods? The longer the term the better.Bond: How much is the bond (a lease guarantee which is usually 3–6 months rent value) on the lease agreement and how is it to be dealt with in the sale? This can have a significant impact on your cashflow.Assignment right: Does the lease agreement give the existing owner the right to assign the lease to you? Without it, the sale can’t proceed without renegotiating a new lease with the landlord.Current rent and rent increases: Is the current rent the amount that the seller disclosed to you and when is the next rent review date and what is the structure and % for increasing the rent? Look for the big increase in rent that may have been negotiated at the start of the current business.Trading times: What are the allowable trading times under the lease? Make sure you can trade the hours you want.Permitted Use: What does the lease say about the permitted use of the premises? Does it allow sub-leasing? Make sure you can do the things you want with the business.Outgoings: What is the amount of the outgoings? (your business’s contribution to the owners building insurance, rates and building maintenance). This amount is above what you pay for the rent.Breaches: Are there any current or past breaches under the lease agreement?Other issues: The suitability and soundness of the premises, any council plans for road changes or new shopping developments in the area, the premises have meet hygiene inspections and safety regulations as evidence by certifications and notices.These areas give you a general view of the due diligence that was undertaken in the cafe/restaurant businesses that I traded but I emphasis the point again that it is best to outsource the due diligence process to professional and experienced people because every sale transaction is different and the smallest issue overlooked or unaddressed may have major ramifications in the future.Footnotes[1] Peter Baskerville's answer to What valuation multiples/techniques should I used to determine the valuation of an existing coffee shop for sale?[2] https://www.quora.com/What-due-diligence-is-required-when-buying-a-cafe-or-restaurant/answer/Peter-Baskerville/comment/50521884[3] Guidelines for allocating the purchase price of a business - Hall & Wilcox[4] Checklist: Buying a business, existing or estalished