Business Sale Agreement: Latest Updated Important Notes

A Business Sale Agreement is a crucial legal agreement between parties involved in the transfer of business ownership.

In this article, let’s explore the key characteristics and important considerations of a Business Sale Agreement with Inter Justice Law Firm, aiming to safeguard the legitimate rights and interests of both the buying and selling parties, and avoid errors that could lead to disadvantages when executing the Business Sale Agreement.

According to the Enterprise Law 2020, the term “Business Sale Agreement” specifically applies to sole proprietorships, while other types of enterprises such as Limited Liability Companies and Joint-Stock Companies do not undergo direct sales but rather through the transfer of contributed capital or shares.

Article 29 of the Competition Law 2018 clearly states that a business acquisition is when an enterprise directly or indirectly purchases all or part of the contributed capital or assets of another enterprise, sufficient to control or dominate the acquired enterprise or a sector or industry of the acquired enterprise.

According to Article 385 of the Civil Code, a contract is an agreement between parties regarding the establishment, change, or termination of civil rights and obligations.

Currently, Vietnam does not have a specific definition for a Business Sale Agreement. Based on the regulations on business sales in Vietnam and the concept of a contract as defined by the Civil Code, a Business Sale Agreement is understood as follows: A sole proprietorship sale agreement, an agreement to transfer the entire charter capital, an agreement to transfer controlling contributed capital or shares, or an agreement to sell a 100% state-owned enterprise (collectively referred to as a Business Sale Agreement) is an agreement between parties whereby the business owner transfers all capital or a controlling portion of capital to the business buyer. The business buyer has the right to own part or all of the business and has the obligation to pay the business owner.

Characteristics of a Business Sale Agreement

When executing a Business Sale Agreement, businesses should note the following five important characteristics:

1. The object of the transaction is the business: A business sale is a special asset transaction where the business is considered “goods.” This means that when conducting the transaction, all participating parties must clearly understand the nature of the business as an asset that can be bought and sold or transferred.
2. Control over the target business: A crucial element in a Business Sale Agreement is that the buyer must gain control over the target business’s operations. This is demonstrated by the buyer owning a sufficient controlling stake, thereby enabling participation in management and operational decisions. This right is usually linked to the proportion of shares or contributed capital the buyer holds.
3. The seller of the business: Only the business owner or a legally authorized person can execute the sale of the business. The seller can be an individual or an organization owning the business, with the right to sell part or all of the business depending on the agreement between the parties.
4. The buyer of the business: The buyer can be any organization or individual with the need and sufficient financial capacity to purchase the business. The buyer can acquire all or part of the shares/contributed capital of the business, thereby becoming the new owner or gaining control of the business.
5. Legal procedures and state authority control: A business sale must comply with current legal regulations, including notification and approval from the competition management authority if the transaction reaches a certain threshold in terms of scale or market share. These regulations aim to prevent monopolies and ensure a healthy competitive environment in the market.

Important Contents of a Business Sale Agreement

A Business Sale Agreement should include the following contents to protect the rights of the parties:

1. Information of the Contracting Parties: The parties must provide complete information about their businesses, including name, registered address, tax identification number, and legal representative.
2. Transfer Value: The agreement must clearly state the transfer value, including any additional payments and the currency used for payment.
3. Payment Method and Schedule: Clearly define the payment method (bank transfer, cash) and the payment schedule for each installment.
4. Time of Ownership Transfer and Risk: Determine the time of business ownership transfer and the responsibilities related to assets and liabilities.
5. Legal Rights and Obligations of the Parties: Clearly specify the obligations of each party during the execution of the agreement.
6. Dispute Resolution Clause: In case of disputes, the agreement should stipulate the method of dispute resolution, such as through the court or arbitration.
7. Commitments Regarding the Business Status: The seller needs to commit to the financial status of the business, including debts and other financial obligations.

Important Notes When Executing a Business Sale Agreement

When executing a Business Sale Agreement, there are several important notes to consider to avoid legal and financial risks:

1. Ensure the Agreement is in Writing: All business sale transactions must be documented in writing and clearly identify the object of the transaction.
2. Liability After Transfer: The former business owner may still be liable for debts incurred before the business transfer, unless otherwise agreed.
3. Register Change of Ownership: The business buyer needs to register the change of business ownership in accordance with the Enterprise Law.
4. Legal Advice: Before signing the agreement, the parties should consult with lawyers or legal departments to ensure the agreement complies with current legal regulations.
5. Check the Business’s Financial Status: The buyer needs to thoroughly check the financial status of the business, including debts, labor contracts, and other financial obligations.
6. Clause Prohibiting Share Repurchase: The agreement should clearly stipulate the prohibition of the parties repurchasing shares for a certain period without the consent of the relevant parties.
7. Accurate Implementation of Agreements: Fully fulfilling the obligations in the agreement will help limit disputes and protect the rights of the parties.

A Business Sale Agreement is an important and complex transaction that requires strict adherence to legal regulations. To ensure the transaction proceeds smoothly and without legal risks, the involved parties need to pay attention to factors such as identifying the object of the agreement, commitments regarding the business status, and fully completing legal procedures. Make sure you consult with legal experts before signing the agreement to best protect the interests of your business.