A business sale agreement closes one chapter and opens another. For the seller, it’s often the largest single transaction of their working life — the proceeds fund retirement, the next venture, or family security. For the buyer, it’s a multi-year capital commitment with operating risk attached. The contract decides whether the deal completes cleanly or unravels into a multi-year dispute.
Before signing — as buyer or seller — the contract review needs to surface the structural and financial risks.
Asset sale vs share sale
The threshold question: is this an asset sale (buyer acquires specific assets and assumed liabilities) or a share sale (buyer acquires the company, with all its assets and liabilities, including unknown ones)? The choice has massive tax, liability, and operational implications. Asset sales protect the buyer from historical liabilities; share sales preserve contracts, licences, and business continuity. Most disputes between buyer and seller about deal structure resolve in favour of asset sale for buyers, share sale for sellers.
The clauses that matter most
- Purchase price and adjustment mechanism. Fixed price, locked-box (price set at a historical date), or completion accounts (price adjusted at completion based on working capital, debt, cash). Each has different risk allocation. Earn-out arrangements (deferred payments tied to post-completion performance) are common but contentious.
- Conditions precedent. Things that must happen before completion — third-party consents, regulatory approvals (FIRB, ACCC), landlord consents to lease assignments, key customer consents, employee transfer arrangements. Each is a deal risk.
- Warranties and representations. Seller statements about the business — accounts, contracts, employees, IP, litigation, tax, compliance. Breach gives the buyer a claim. Negotiated heavily — buyers want extensive warranties, sellers want narrow ones.
- Disclosure letter. Seller’s formal disclosure of exceptions to the warranties. What’s disclosed can’t be claimed against. The disclosure letter is as important as the warranties themselves.
- Limitation of liability. Cap on warranty claims (often 100% of price for fundamental warranties, lower for general warranties), de minimis (no claim under $X), basket (claims aggregate before recovery), time limits (general warranties 2 years, tax warranties 7 years).
- Indemnities. Specific indemnities for known risks — unrecorded liabilities, specific litigation, environmental issues, transfer-pricing exposures. Usually broader than warranty claims (no de minimis or basket).
- Restraint of trade on the seller. Reasonable restraints (typically 2–5 years for the seller, defined geography and activities) are enforceable. Excessive restraints will be struck down. Critical for protecting the buyer’s investment.
- Employee transfer. Transmission of business under the Fair Work Act preserves employee entitlements. Treatment of accrued leave (often a price adjustment), key person retention agreements.
- Tax structuring. CGT implications, GST treatment (going concern exemption usually applies to business sales), stamp duty on real property and certain business assets, tax warranties and indemnities.
Common red flags
- Earn-out structures with metrics the buyer controls post-completion — almost always disputed
- Unlimited warranty exposure with no cap or short time limits
- Disclosure letter drafted vaguely or “by reference to the data room” — disputes about what’s been disclosed
- Conditions precedent with no long-stop date — deal can be left in limbo
- Restraints drafted broader than reasonable — partially or wholly unenforceable
- Working capital adjustment based on undefined “normalised” working capital
- Material adverse change clauses giving buyer broad walk-away rights pre-completion
- Indemnities with no cap and no time limit
What Claim Done’s contract review delivers
Upload the sale agreement and the disclosure letter. The AI returns a 15-minute A4 PDF flagging warranty cap exposure, conditions-precedent risk, earn-out structure, restraint enforceability, and disclosure scope — pitched at buyer or seller. Specific suggested redrafts ranked by financial risk. Flat $79, 24/7.
When to take it to a lawyer
For business sales over $500,000, share sales of any size (where unknown liabilities transfer), deals involving real property, deals requiring regulatory approval (FIRB, ACCC, ASIC), or any deal with an earn-out structure — engage a corporate lawyer with M&A experience. The Claim Done review pre-flags issues for targeted legal advice. For a transaction of this size, the legal fee is small insurance.