Understanding a Purchase Agreement Template
With any sizable transaction, the legal transfer of ownership needs to be documented properly for the safety of all parties concerned. This can only be done using purchase agreement templates, which are legally binding contracts. These purchase agreements are designed to protect and bind the parties to the specific terms of the agreement and facilitate the transaction to the benefit of all concerned.
The purpose of any purchase agreement template is to fulfill the legal and transactional obligations for the transfer of large purchases whether it be for individuals or companies. These documents are made up of various parts that all must be documented and completed correctly so that the transaction can run its course without unnecessary delays or penalty fees. The terms and conditions outlined in any purchase agreement are specific to the type of asset and terms of the sale, this document is then authorized by the parties by means of signatures by representatives from both parties.
Why Use Purchase Agreements in Your Business
Gone are the days that business deals are done on a handshake and both parties' commitment to the deal. In fact, those days are a distant memory. Large transactions, whether for business or personal reasons are concluded by having the paperwork done correctly. Out of all the reasons to use a purchase agreement in your business, none is more important than this one. Your business cannot afford to be without proper legal documentation when buying or selling any assets. Any business transaction currently has a host of clauses and conditions that the only way you can make sure that both parties stick to the terms is by having a legally binding document underpinning the process. Business-in-a-Box provides you with purchase agreements that are legally binding and created by the best industry experts so that you can transfer ownership of your assets without hassle. This secures your legal position and ensures that you have no surprises during the transaction. Another reason for using a purchase agreement for your business is that it already includes all the details and fields that are needed for a fully compliant contract.
What Details Must Be on the Purchase Agreement
Purchase agreements are simple yet comprehensive documents. The details included on the purchase agreement template are as follows:
- Buyer and Seller Details - As with any legal document, the initial section is dedicated to the full registered details of the buyer and seller. These details include the company name and registered physical address details as well as the appointed persons that will be signing on behalf of both parties.
- Details of Assets - The full details of the asset must be listed as well as the full specification of the item in question. If the transaction includes multiple assets, then each item must be listed with the full specification so that there could be no later confusion with the delivered product.
- Basic Details of Transaction - The first transactional details of the document will include the cost of the transaction and will also include the basis of the transfer so that all parties can understand the “basics” of the purchase transaction. The details include the following:
- Monetary Amount - The cost of each item listed in the transaction.
- Payment Terms - Full payment or payment terms and commencement dates and conclusion.
- Delivery Terms - Will the assets be delivered complete or in parts?
- Liability allocations - Which one of the parties will accept the various liabilities of the transaction such as storage or damage?
- Escrow Details - Will the payment be done directly or be held in escrow until complete delivery or transfer?
- Risk of loss & Notification - Depending on the asset in question, you will have certain loss and notification requirements that need to be detailed for the duration of the process.
- Warranties of Seller and Purchaser - In this section, you will list all warranties of the concerned parties so that each authority will have a clear understanding of what to expect in the transaction and where the liabilities end. This will enable both parties to prepare for the transfer of ownership without unnecessary delays.
- Complete Transaction Details - This section of the agreement will include the finer specifics of the transaction. Depending on the assets that are being transacted, the details could include a full details specification sheet of the items or could indeed be a listing of the property and structures on the property. For transactions that include businesses and assets, this section will include details on the business structure like employees and management structure as well as office assets like furniture and equipment. The particulars of the employee’s union associations will also be part of this section.
- Business Related Clauses - For business transactions, two vital parts must be addressed: the employee's operational structure and the customer base and service delivery during the transaction process. Both parties must agree to how the collections and client service delivery will be conducted during the transition period so that the enterprise will not suffer because of ownership change.
- Jurisdiction of Transaction - For every transaction, both parties must agree to the ruling jurisdiction for the transaction so that if there are any disputes, there is an arbitration and mediation process that can be followed as approved by signatories.
- Miscellaneous - These are terms that form the periphery of the agreement; terms that will make the transition of ownership smoother and complex, especially in the case of business purchases you will have the pre- and post-transaction terms listed for both parties to agree upon. These terms are often as vital as the main purchase terms and conditions as they will guide the parties on how to deal with the various issues that could arise from the agreement. Employees and clients often need more attention during this process than the actual buyer and seller. The more detail you can include here, the smoother your transaction will flow.
- Legal and Tax - Besides the jurisdiction details already mentioned, you will need to appoint a legal and tax consultant to make sure that the transaction complies with the various regulations within the jurisdiction. These could be outside council or the internal legal and tax officers of the company. You will also have to list the various legal fees and tax commitments of the company or assets so that it can be documented for the transaction.
What are the True Benefits of Using a Purchase Agreement?
When you are planning new purchases or selling your assets, the above will give the basis of security when dealing with large ticket transactions. Though, what are the real benefits of using legally binding purchase agreement templates for your transactions?
The benefits are clear when you understand the legal aspects of the transaction, but some other benefits are not clear at first glance. These are the benefits that will become available to your organization:
- Certainty and Security - Once you have signed a valid purchase agreement, both parties have committed to the transaction. This will give you the certainty that if you comply with the terms of the agreement, you will conclude the deal. In terms of business purchases, this gives you the ability to deal with employees' concerns as well as client issues that might arise from the change.
- Initial Financial Commitment - Most large transactions have a clause that requires the buyer to commit to an initial payment that solidifies their interest and will give the seller the financial ability to start the transfer process with incurring loan debt or budget issues. When a buyer deposits an initial payment, you as seller are also able to commit to the buyer rather than having multiple prospects in negotiations. This will lower your stress levels during the process significantly.
- Finite Details on Purchase - Placing your business or assets on the market does not come with a sell-by date. Once you have a purchase agreement signed, you have secured the buyer and a completion date that will free your time up to move onto the next deal or to focus on other aspects of your business. Both parties can act according to the completion date without assistance, which lowers costs and lessens the strain on either corporate structure.
The benefits may sound self-explanatory, yet they are often missed because the parties do not have a legally binding and properly formatted purchase agreement or sale agreement for the transaction. With Business-in-a-Box templates you are assured of always having 100% perfect documentation for any aspect of your business, such as purchase agreements or sales agreements. These templates reduce the strain on your resources as they are easily editable and simple to complete.
Last Page Details and Extra
After all the clauses have been agreed to and the terms are set out on the agreement, there is only one thing left to do; to list any extra documentation that will accompany the Purchase Agreement and sign the documentation.
The list of extra documentation that could be included with a Purchase Agreement are:
- Business Financial Statements - at least the last 12 months
- Initial Letter of Intent - initial letters from buyers
- Any Lease documentation relating to the transaction - lease documents for included assets and other equipment
- Vendor or Supplier Agreements for the Business - Vendor agreements could have a significant impact on valuations and purchase price, so they need to form part of the agreement.
- Asset Valuations - Each asset in the agreement must have a valuation from a reputable evaluator approved by both parties so that the total price of the agreement is confirmed and authorized.
- Owner Bio’s - This is used in the event where you are purchasing a group of companies that have many directors and owners. These details make up the foundation of your future interaction with these vital people in the corporate structure.
- Industry/Market Reports - Regardless of whether you are familiar with the industry, you should have the independent market reports included in your purchase documentation, so you have a full understanding of where the business that you are purchasing fits in the current market. The same is true for the seller. Where you are representing a business case for your enterprise, you will do well by backing it up with these independent reports.
- Current Projects and Marketing - Especially for business transactions, you would need to understand what current projects the business is working on. These projects could have a significant impact on the transaction. The marketing initiatives of the business will have an impact on the transaction as the buyer would need to know what commitments the company has and where the focus is of the organization.
The final page of a purchase agreement will have the authorized signatures of the representatives of the parties and the date of signing that often indicates the conclusion of the legal transaction.
You simply cannot buy or sell anything without a properly formatted purchase agreement template that will secure your financial and physical assets during the transaction. Business-in-a-Box has more than 2,000 business templates that are applicable in any market or industry and you can gain access to this wealth of knowledge and documentation by signing up. Make sure your business transactions run smoothly from now on with Business-in-a-Box business templates.