Checklist, Summary of the Law, and Sample Form of the Sale of a Business

					This document provides a checklist for a for the sale of a business. The checklist
provides standard questions a potential purchaser should consider including the
business, financial, accounting, tax, and legal consequences of buying the target
business. These questions will guide the purchaser through the due diligence process
which involves collecting the necessary legal, financial, and operational documents as
well as confirming the seller’s representations and warranties pertaining to the sale.
Prior to receiving any confidential information or data, buyers and sellers should be
prepared to sign a Non-Disclosure Agreement.
       Checklist, Summary of the Law, and Sample Form of the Sale of a Business

I.       Identification of parties.
         A.      Names.
         B.      Addresses.
         C.      Character of each party.
                 1.     Sole Proprietorship.
                 2.     Professional Practitioner.

II.      Recitals.
         A.     Business or profession conducted by seller.
         B.     Desire of seller to sell and buyer to buy.
         C.     Desire of seller to retire.

III.     Assets subject to agreement.
         A.    Business building and other real property.
         B.    Good will; use of firm name or customer lists.
               1.     Stock in trade.
               2.     Equipment, furniture, and fixtures.
               3.     Patents, copyrights, trademarks, and trade names.
               4.     Cash on hand and on deposit.
               5.     Insurance policies.
               6.     Notes and accounts receivable, securities for debts, and outstanding
                      contracts.
               7.     Other assets.
               8.     Valuation of assets sold.

IV.      Nature of consideration.
         A.    Payment of money.
         B.    Assumption of debts and liabilities.
         C.    Other consideration.

V.       Allocation of purchase price to various assets sold.

VI.      Time and manner of payment.
         A.    All cash on closing.
         B.    Part payment on signing and balance on closing.
         C.    Deposit held in escrow until closing.
         D.    Installment payments.
         E.    Mortgage or other collateral security.
         F.    Forfeiture of deposit for default in paying purchase price.
         G.    Other methods of payment.
         H.    Personal guaranty of payment by buyer.

VII.     Closing.
         A.    Delivery of instruments of transfer.
         B.    Payment of purchase price.
         C.    Acquisition of necessary rulings and approvals.
         D.    Conduct of business until closing.
         E.    Date of closing.
         F.    Inspection of assets sold.


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VIII.    Inspection of books, records, and premises.
         A.    Furnishing of customer list.
         B.    Furnishing of supplier list.

IX.      Representations by seller.
         A.    Title to property and assets.
         B.    Authority to enter into agreement.
         C.    Accuracy and completeness of books and records.
         D.    All outstanding liens, contracts, judgments, and other obligations disclosed.
         E.    Absence of labor disputes.
         F.    Validity of patents, copyrights, trademarks, and tradenames.
         G.    Compliance with all laws affecting business.
         H.    Survival of representations.

X.       Indemnification of buyer.

XI.      Assumption by buyer of lease and contracts.
         A.   Obtaining of lessor's consent to assignment of lease.
         B.   Assumption by buyer of outstanding contracts.
         C.   Disavowal of contracts not listed by seller.
         D.   Assumption by buyer of seller's collective bargaining agreement.

X.       Payment of broker's commission.

XI.      Compliance with U.C.C. Article 6 or other bulk transfer provisions.

XII.     Instruction of buyer by seller in operation of business.

XIII.    Covenant not to compete.
         A.   Territory.
         B.   Duration.

XIV.     Taxes
         A.    Payment of sales or use taxes imposed on transfer of assets.
         B.    Payment of other taxes.
         C.    Transfer of tax identification numbers.

XV.      Insurance.

XVI.     Contingencies.
         A.     On buyer's obtaining license or permit.
         B.     On buyer's continuation as franchisee.

XVII.    Execution of bill of sale to transfer personal properties.

XVIII. Transfer of titles of motor vehicles.

XIX.     Execution of warranty deed to transfer real properties.

XX.      Risk of loss.




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XXI.     Remedies on default.

XXII.    Assignability of rights under agreement.

XXIII. Modification of agreement.

XXIV. Arbitration of disputes.

XXV. Manner of giving notice.

XXVII. Binding effect of agreement on successors and assigns.

XXVIII. Governing law.

XXIX. Date of execution.

XXX. Signatures.

                                         Sale of a Sole Proprietorship

In its simplest form, the sale of a sole proprietorship could have provisions similar to the
following:

I.      In consideration of the mutual promises and covenants of the parties, Seller sells,
assigns, transfers, and conveys to Buyer all the stock of goods, furniture and fixtures, accounts,
and office supplies, including also the lease of the building occupied by Seller at (street address,
city, county, state, zip code).

II.   The consideration for these assets is $_____________, receipt of which is
acknowledged by Seller. The proration of the consideration is as follows:

         A.       Furniture and fixtures: $___________________.

         B.       Stock of Goods: $________________________.

         C.       Office supplies: $ ________________________.

         D.       Accounts receivable: $ ____________________.

         E.       Lease: $_________________________.

                  Total: $__________________

III.     Buyer, and its successors and assigns, shall have and hold the property forever. Seller
covenants with purchaser that the property is free from all encumbrances; Seller has the legal
right to transfer and sell the property; and Seller will defend the title to the property against all
persons. It is further a part of the consideration of this transfer that the name of Seller or any
part of it shall not be use by Buyer in the operation of the business subsequent to this transfer
nor will the name be sold or transferred by Buyer to any other person or persons. This restriction
shall not be construed to prohibit the designation by Buyer that it is the successor to Seller.



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NOTE: Often such an agreement will contain a covenant not to compete similar to the following:

         Seller shall not, either directly or indirectly, alone or with others, enter into or engage in
         the (type of nature of business) business within (restricted area, such as city or certain
         number of miles from business being sold) for a period of ____years from the date of
         execution of this agreement. Further, seller shall not, during that period divulge,
         communicate, use to the detriment of buyer or for the benefit of any other person or
         persons, or misuse in any way, any confidential information or trade secrets of the
         business sold under this agreement, including customer lists, personnel information, and
         secret processes or other technical data.

      For such a covenant to be enforceable it must be: i) necessary to protect a business; ii)
reasonable in time; and iii) reasonable in the geographic scope (i.e., the territory covered).

                                                Sale of Partnership

        The same matters should be considered in the sale of a business owned by a
partnership as in the sale of a sole proprietorship. The contract of sale should distinguish the
transaction as a sale of assets rather than as a sale of partnership interests. However, the sale
of a partnership interest can be accomplished with language similar to the following:

         Assignor, by this instrument, assigns all of Assignor's right, title, and interests in the
         Partnership, being a _____% share of the business, to Assignee. Assignor shall be
         relieved of any future liability for Partnership debts and shall no longer be entitled to any
         share of the Partnership profits or assets. Assignee shall be entitled to all future shares
         of the Partnership profits or any distribution of assets, in accordance with said
         Partnership Agreement and shall assume liability for a proportionate share of all future
         partnership losses in accordance with said Partnership Agreement.

Matters to be considered when drafting agreement for sale of business by partnership:

1.       Names and addresses of parties to agreement.

2.       Character of each party.
         A.    Partnership.
         B.    Joint venture.

3.       Recitals.
         A.     Name of partnership and business or profession conducted by it.
         B.     Desire of seller to sell and buyer to buy.
         C.     Desire to terminate and dissolve partnership after sale.

4.       Identification of basic partnership agreement.
         A.       Date of agreement.
         B.       Parties to agreement.
         C.       Name of partnership.

5.       Description of assets being sold.
         A.     Real or personal property.
         B.     Business name.
         C.     Capital interest of partnership.


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         D.       Goodwill.
         E.       Customer list.
         F.       Stock in trade.
         G.       Patents, copyrights, trademarks, and tradenames.
         H.       Cash on hand and on deposit.

6.       Insurance policies.

7.       Notes and accounts receivable, securities for debts, outstanding contracts, as well as
         other assets.

8.       Nature of consideration.
         A.     Payment of money.
         B.     Assumption of debts and liabilities.
         C.     Other consideration.

9.       Allocation of purchase price to various assets sold.

10.      Time and manner of payment.
         A.    All cash on closing.
         B.    Part payment on signing and balance on closing.
         C.    Deposit held in escrow until closing.
         D.    Installment payments.
         E.    Mortgage or other collateral security.
         F.    Forfeiture of deposit for default in paying purchase price.
         G.    Other methods of payment.

11.      Closing.
         A.     Delivery of instruments of transfer.
         B.     Payment of purchase price.
         C.     Acquisition of necessary rulings and approvals.
         D.      Conduct of business until closing.
         E.     Date of closing.

12..     Inspections of books, records, and premises.

13.      Representations by seller.
         A.    Title to property and assets in partnership.
         B.    Partnership validly organized and in existence.
         C.    Authorization of sale by partners.
         D.    Accuracy and completeness of books and records.
         E.    All outstanding liens, contracts, and other obligations disclosed.
         F.    Absence of labor disputes.
         G.    Validity of patents, copyrights, trademarks, and tradenames.
         H.    Compliance with all laws affecting business.

14.      Reservations by seller

15.      Indemnification of buyer by seller and partners.
         A.    Against liabilities not expressly assumed.
         B.    Against damages resulting from breach.



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16.      Representations by buyer.
         A.    Authority to enter into agreement.
         B.    Corporation validly organized and in good standing.
         C.    Authorization of agreement by directors and shareholders.

17.      Obligations and liabilities assumed by buyer.
         A.     Of all or specified liabilities.
         B.     Of labor agreements.

18.      Payment of broker's commission.

19.      Compliance with bulk transfers laws.

20.      Covenant not to compete.
         A.    Territory.
         B.    Duration.

21.       Payment of taxes

22.      Insurance.

23.      Contingencies.
         A.     On buyer's obtaining license.
         B.     On buyer's continuance as franchisee.

24.      Risk of loss.

25.      Remedies on default.

26.       Assignability of rights.

27.      Modification of agreement.

28.      Effect of sale on status of partnership.

29.      Distribution of proceeds of sale.

30.      Notice to customers, clients, or public.

31.      Arbitration of disputes.

32.      Manner of giving notice.

33.      Binding effect of agreement on successors and assigns.

34.      Governing law.

35.      Date of execution.

36.      Signatures.




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                                    Sale of a Business by a Corporation

        Many of the considerations in drafting an agreement for the sale of a business by a
corporation are comparable to those presented by contracts relating to the sale of businesses
by sole proprietorships. Generally, reference should be made to the forms and checklists above.
It should be noted, however, that the sale or acquisition of a corporate enterprise tends to be a
more complex transaction.

        Sale of the ownership of a corporate business may be accomplished in several ways. A
transfer of the corporate stock and assets, in return for cash or stock of the buyer, are the most
common methods for the sale of a corporation. Merger and consolidation are resorted to much
less frequently.

        A final determination as to the form a corporate acquisition will take, and the contents of
a sales agreement or an agreement of transfer, will most often be based on tax factors.
Numerous other considerations are important, however, and must be taken into account in
drafting such agreements.

        For example, sales of all or substantially all of the assets of a corporation are regulated
by statute in most jurisdictions, and the agreement must be drafted so as to assure compliance
with the prescribed procedures and requirements. Not only the board of directors but also a
stated percentage of the shareholders must generally approve the transaction. The parties
should consider inclusion of a provision postponing the closing until shareholder approval is
obtained or a provision cancelling the transfer if approval cannot be obtained by a certain date.

Matters to be considered when drafting agreement for sale of corporate business

1.       Identification of parties.
         A.       Names.
         B.       Addresses.
         C.       State or states of incorporation of parties.

2,       Characterization of transaction.
         A.    Assets sale.
         B.    Stock sale.
         C.    Merger.
         D.    Consolidation.

3.       Citation of qualifying Internal Revenue Code provision of tax-free reorganization.

4.       Recitals.
         A.     Business conducted by seller.
         B.     Desire of seller to sell and buyer to buy.
         C.     Authorized stock of seller or buyer or both.
         D.     Approval of transaction by directors of seller or buyer or both.
         E.     Approval of transaction by shareholders of seller or buyer or both.

5.       Assets subject to agreement.
         A.     Securities.
         B.     Real property.


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         C.       Good will.
         D.       Equipment and other personalty.
         E.       Patents, copyrights, trademarks, and tradenames.
         F.       Other assets.

6.       Effect of agreement on subsidiaries, if any.

7.       Amount of consideration.
         A..  Single sum.
         B.   Aggregate of separate sums allocated to various properties and assets.

8.       Nature of consideration.
         A.     Cash.
         B.     Stock.
         C.     Assumption of debts and liabilities.
         D.     Other consideration.

9.       Time and manner of payment.
         A.    Transfer of all cash, stock, or other consideration at closing.
         B.    Installment payments.
         C.    Security for payment.

10.      Conditions precedent to obligations of parties.
         A.     Consent of shareholders and/or directors.
         B.     Tax ruling that transaction is tax-free reorganization or that other favorable tax
                results obtain.
         C.     Antitrust ruling that transaction not violation of § 7 of Clayton Act.
         D.     Securities registration.
         E.     Approval by counsel or accountants or both.
         F.     Other requisite approvals and findings.
         G.     Compliance with terms of agreement.

11.      Clearance receipts for contributions and payments by seller.
         A.     Taxes.
         B.     Unemployment insurance.
         C.     Others.

12.      Merger or consolidation.
         A.    Name and location of surviving or consolidated corporation.
         B.    Powers and purposes.
         C.    Capital structure; exchange of shares of nonsurviving corporation or constituent
               corporations for shares of surviving or consolidated corporation.
         D.    Transfer of assets and liabilities of nonsurviving corporation or constituent
               corporations to surviving or consolidated corporation.
         E.    Directors and officers of surviving or consolidated corporation.
         F.    Citation of statutory authorization for merger or consolidation.
         G.    Submission of merger or consolidation agreement to shareholders of each
               corporation, on proper notice.
         H.    Effective date of merger or consolidation.

13.      Assumption of employee benefit plans and stock options.


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14.      Covenant against declaration of dividends or changes in stock ownership.

15.      Closing.
         A.     Payment of consideration.
         B.     Delivery of instruments of transfer.
         C.     Delivery of certificates required by statute.
         D.     Acquisition of necessary approvals and rulings.
         E.     Adjustments in purchase price on closing.
         F.     Conduct of business until closing.
         G.     Date of closing.

16.      Inspection of books, records, and premises.

17.      Representations and warranties by seller.
         A.    Corporate ownership of assets.
         B.    Corporation validly organized and in good standing.
         C.    Authorization of sale by directors and shareholders.
         D.    Accuracy and completeness of financial statements.
         E.    All outstanding liens, contracts, and other obligations disclosed.
         F.    Absence of subsidiaries.
         G.    Absence of labor trouble.
         H.    Validity of patents, copyrights, trademarks, and tradenames.
         I.    Care and preservation of property and assets.
         K.    Compliance with all laws affecting business.

18.      Indemnification of buyer by seller and shareholders.
         A.    Against liabilities not expressly assumed.
         B.    Against damages resulting from breach of warranty.

19.      Representations by buyer.
         A,    Corporation validly organized and in good standing.
         B.    Authorization of acquisition by directors and by shareholders.
         C.    Capital structure; validity of stock issue to be used in acquisition.

20.      Assumption by buyer of all or specified liabilities.

21.      Assumption by buyer of seller's collective bargaining agreement.

22.      Payment of broker's commission.

23.      Compliance with U.C.C. Article 6 or other bulk transfer provisions.

24.      Covenants not to compete.
         A.    By all shareholders of seller.
         B.    By principal shareholders of seller.

25.      License to buyer to use seller's firm or tradename.

26.      Employment of seller's personnel by buyer.
         A.    Of one or more of seller's directors or officers.
         B.    Of one or more of seller's shareholders.


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         C.       Of seller's employees.

27.      Resignation of seller's directors and officers.

28.      Retention of stock by seller as security for purchase price.

29.      Risk of loss.

30.      Assignability of rights under agreement.

31.      Modification of agreement.

32.      Remedies on default.

33.      Arbitration or mediation of disputes.

34.      Manner of giving notice.

35.      Binding effect of agreement on successors and assigns.

36.      Governing law.

37.      Date of execution.

38.      Signatures.

39.      Corporate seal or seals.

Acknowledgments – Form may be different states.




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Description: This document provides a checklist for a for the sale of a business. The checklist provides standard questions a potential purchaser should consider including the business, financial, accounting, tax, and legal consequences of buying the target business. These questions will guide the purchaser through the due diligence process which involves collecting the necessary legal, financial, and operational documents as well as confirming the seller’s representations and warranties pertaining to the sale. Prior to receiving any confidential information or data, buyers and sellers should be prepared to sign a Non-Disclosure Agreement.