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4 things to include in a sole proprietorship buy-sell agreement

On Behalf of | Feb 14, 2022 | Business & Commercial Law

A sole proprietorship is different from most other business structures in that there is a close identification between the company and the owner.

It is possible to sell a sole proprietorship just as it is possible to sell any other type of business. However, because of the company’s unique structure, there are certain provisions that a buy-sell agreement for a sole proprietorship should include.

1. Training

The new owner may require training to run the business properly and effectively adapt the business model. According to AZ Central, the buy-sell agreement should contain provisions by which the previous owner stays on for a while to provide the necessary training. The previous owner should receive payment for the services, either by the week or by the hour.

2. Assets

The previous owner probably obtained assets in the name of the business. The buy-sell agreement should specify which assets the sale of the sole proprietorship includes and which remain the property of the seller.

3. Liabilities

In a sole proprietorship, the owner is personally liable for business-related debts and penalties. Therefore, to protect the buyer, the agreement should specify that any business liabilities that the previous owner incurred remain his or her responsibility.

4. Non-compete

After selling the business, the seller may wish to apply the same skills elsewhere. This could pose a problem for the buyer if the previous owner were to engage in similar business activities. Existing customers may seek out the previous owner rather than returning to the existing business that is now under new management. To prevent this, the agreement should include a non-compete agreement restricting the seller’s abilities to engage in such activities.

To be enforceable, the non-compete clause cannot be open-ended. It must delineate the specific geographic area to which it applies as well as the time frame during which it remains in force.