Selling your business can feel like the final step after years of work, but the contracts behind it still need attention. An overlooked provision could leave you responsible for an obligation you thought the buyer would take over.
Here are some ways contracts can be handled.
Some contracts may transfer to the new owner
Some agreements can transfer to the buyer as part of the sale, allowing the business to continue existing relationships without starting over. Your purchase agreement should identify which contracts the buyer will assume.
Review each agreement rather than assuming every contract automatically follows the business.
Some contracts may require the other party’s consent
Some agreements require approval from the other party before you can transfer them to the buyer. Look for language that restricts assignment or requires consent when ownership changes.
For contracts involving the sale of goods, Arizona law allows assignment of rights. The transfer generally cannot materially change the other party’s obligations, increase its burden or risk or reduce its chance of receiving expected performance.
Some contracts may remain under your name
Some obligations may stay with you even after the buyer takes over the business. The sale agreement may exclude certain agreements, or an obligation may relate personally to you rather than to the business.
For example, you might have personally guaranteed a debt or signed an agreement that does not transfer with the business. Identify those obligations before closing so you know what remains your responsibility.
Some contracts may end after the sale
Some agreements may end because the sale triggers a termination or change-of-control provision. A contract might give one party the right to terminate when ownership changes, which could affect a relationship the buyer expects to receive.
Review these terms early so you can address an agreement that could end before the buyer takes over. If an important contract will not continue, account for that issue in the transaction rather than discovering it after closing.
Make sure your contracts are addressed before closing
Selling a business can affect each agreement differently: some may transfer, some may require consent, some may remain with you and others may end. Review your contracts before closing and match their treatment with the sale documents. An attorney can help you identify transfer restrictions and continuing obligations before you sign.