Selling or transferring a business is more than just a handshake agreement. It involves a complex legal process that requires clear and careful documentation. At Enoch Tarver, we help business owners and buyers understand every step of this process to ensure that their interests are fully protected.
Understanding the Type of Sale
Business sales generally fall into two categories: asset sales and equity sales.
- In an asset sale, the buyer purchases individual assets like inventory, equipment, and intellectual property. The legal entity itself is not transferred.
- In an equity sale, the buyer acquires ownership of the business entity, including its assets, liabilities, and ongoing operations.
Each structure comes with different legal and tax implications. Choosing the correct approach is essential to avoid future conflicts or liabilities.
Essential Legal Documents
There are several core documents involved in business sales or transfers:
- Letter of Intent (LOI)
This is a preliminary document that outlines the basic terms of the proposed transaction. While it is usually nonbinding, it can include binding clauses related to confidentiality and exclusivity. It sets the stage for due diligence and final agreements.
- Purchase Agreement
This is the primary legal document and is either an equity purchase agreement or an asset purchase agreement. It contains critical elements such as the purchase price, payment structure, detailed asset or ownership descriptions, representations and warranties, indemnification clauses, and closing conditions.
- Bill of Sale or Transfer of Interest
In asset sales, a bill of sale provides evidence of the asset transfer. For equity sales, an assignment of interest or stock transfer serves this purpose. These documents ensure the legal transfer of ownership and are often required for administrative tasks, like updating ownership records.
- Transition Service Agreement (TSA)
This agreement outlines any ongoing support the seller will provide after the sale to ensure a smooth transition. It details the scope of services, duration, compensation, and termination terms.
- Employment or Independent Contractor Agreements
If the seller or key employees will remain involved after the sale, these agreements define employment terms, compensation, and noncompete provisions. These documents help protect the buyer’s investment by reducing the risk of key personnel leaving or competing.
- Noncompetition, Nonsolicitation, and Nondisclosure Agreements (NDAs)
These agreements protect confidential information and restrict former owners or employees from competing or soliciting clients and staff. NDAs are critical for preserving the integrity and value of the business during and after the transaction.
Seller-Financed Transactions
Sometimes the seller finances part or all of the purchase. This adds complexity and risk, which makes documentation even more important. Key documents include:
- Promissory Note – a written promise from the buyer to repay the loan under defined terms
- Security Agreement – outlines collateral to secure the loan
- UCC-1 Financing Statement – a public notice of the seller’s interest in the collateral
- Personal Guarantee – provides additional security for the seller
Each of these documents serves to protect the seller’s interests and ensure that the buyer fulfills repayment obligations.
Protect Your Business with the Right Legal Team
Documenting a business sale or transfer is not something to handle alone. Each business and each transaction is unique, and the details matter. At Enoch Tarver, we bring clarity, precision, and strategic guidance to the entire process. Whether you are buying or selling, our team will help you move forward with confidence.
Contact Enoch Tarver today to schedule a consultation and ensure your business transaction is handled with the professionalism and legal precision it deserves.
Reference
Snow, R. (2025, January 17). Documenting a business sale or transfer. WealthCounsel Quarterly.
