Key Takeaways

  • An opportunity agreement defines the terms for transferring a business or its components to a buyer.
  • These agreements can involve asset purchases, share purchases, or distributorship arrangements.
  • Key clauses often include non-compete, confidentiality, and warranty protections.
  • Some states regulate business opportunities through registration and disclosure requirements.
  • Corporate opportunity agreements may protect a company from fiduciary breaches by officers or directors.

A business opportunity agreement is a business investment that is packaged and ready for the buyer to begin business. It is a contract/agreement that transfers ownership of a business from a seller to a buyer. With this type of business opportunity, there is no continued relationship between the seller and buyer.

Business Opportunity Agreement

A business agreement is also known as a business transfer agreement or a sales of business agreement. It can be used to buy or sell a variety of businesses, including restaurants, industrial shops, and retail stores.

The business agreement must include:

  • The terms of the sale.
  • What is and is not included in the sale price.
  • Warranty and clauses to protect the seller and buyer after the transaction is complete.

Purchase of Assets

When the assets of a business are purchased, only one aspect of it is being purchased, not the business itself. This means you may be buying a client list, product, or intellectual property. The company retains its tax filings, name, and liabilities.

Types of Included Assets

  • Business contacts
  • Books, files, and records
  • Confirmed sales orders
  • Equipment
  • Goodwill and business name
  • Inventory
  • Trademarks

Types of Excluded Assets

  • Accounts receivable
  • Cash and bank balances
  • Records of excluded assets
  • Securities

Purchase of Shares

If a buyer purchases all shares in the company, they are purchasing a portion of all aspects of the business. If the buyer purchases all of the shares, they own all facets of the business.

Warranties and Clauses

A business agreement may include the following restrictive warranties or clauses.

  • Confidentiality
  • Environmental compliance
  • Non-competition
  • Non-solicitation

Liability

If a buyer takes on the responsibility of a mortgage, loan, or the balance for accounts payables, they are assuming liability for the business. The buyer has the option to take on some or all of the liabilities or none that the seller accrued during the business's lifetime.

Essential Elements of an Opportunity Agreement

An effective opportunity agreement should clearly outline the rights and obligations of each party. Common provisions include:

  • Identification of the Business Opportunity: Describe the products, services, or systems involved.
  • Terms of the Sale: Detail the purchase price, payment schedule, and method of transfer.
  • Training and Support: Specify any assistance the seller will provide post-transfer (if applicable).
  • Marketing and Territory Rights: Indicate whether the buyer has exclusive rights to a region or customer base.
  • Use of Intellectual Property: Address any licenses for trademarks, brand names, or proprietary technology.

These components ensure clarity, minimize risk, and help enforce the agreement in case of a dispute.

Documenting a Business Opportunity

Typically, a seller setting up a business opportunity documents all key operational procedures involved with starting and running the business. This is usually accomplished by providing insightful manuals that the buyer would need to know based on the experience of the owner. The information provided should adequately cover the startup process, operations, and marketing.

The buyer will need to create a business plan on their own or with the help of a professional.

Once a business plan is in place and before opening for business, it is recommended that the buyer consults with an attorney to confirm that they are in compliance with any business opportunity statutes in the local area.

Legal Compliance and State Regulations

Business opportunity sales are regulated in several U.S. states. These laws typically require:

  • Seller Registration: Some states, like California and Florida, mandate seller registration before marketing business opportunities.
  • Disclosure Documents: Sellers may need to provide a disclosure statement similar to a franchise disclosure document (FDD).
  • Right to Cancel: Many states give buyers a right to cancel the agreement within a set period (e.g., 10 business days).
  • Bonding or Escrow Requirements: To protect buyers, sellers may need to post a surety bond or place initial payments in escrow.

Violations of these rules can result in penalties, rescission rights, or even criminal charges.

Business Opportunity Overview

If you prefer the freedom of running your own business with interference, a business opportunity offers that platform. A franchise, on the other hand, requires that the buyer operate according to the specifications and programs of the franchise seller.

With most business opportunities, you buy the materials, equipment, etc. and open the business under your choice of business name. There are no royalties involved and no trademark rights sold.

Not all states operate the same when it comes to business opportunities. In California, the person handling the sale and purchase of small businesses must have a real estate license.

In 23 other states, laws exist that define business opportunities and regulate the sale of businesses.

Three of the most common types of business opportunities are distributorships, rack jobbing, and vending machine routes. Most states define a business opportunity as follows:

  • Business opportunities involve the sale or lease of goods, services, equipment, etc. that allow the purchaser to start a business.
  • The person selling the business opportunity will either assist the buyer in finding a business location or provide the business opportunity to the purchaser.
  • The seller guarantees that there is a market for the service or product and guarantees the product or service will garner an income greater than or equal to the price of the business opportunity.
  • A fee of more than $500 must be paid to the seller to start the business opportunity.
  • The buyer will purchase services or products that the seller develops.
  • The seller or licenser of the business opportunity supplies the buyer with a marketing plan or sales program.

Corporate Opportunity Agreements

In a corporate setting, an “opportunity agreement” can also refer to a contract between a company and its officers, directors, or affiliates that addresses the handling of business opportunities. These agreements are designed to:

  • Waive the Corporate Opportunity Doctrine: Allow certain individuals or entities to pursue external business opportunities that may overlap with the company’s interests.
  • Define Scope of Duties: Clarify what types of opportunities must be offered to the company first.
  • Avoid Breaches of Fiduciary Duty: Help prevent disputes and litigation related to self-dealing or conflicts of interest.

These contracts are common in private equity, venture capital, and joint venture structures and should be carefully tailored to meet statutory and fiduciary standards.

Frequently Asked Questions

1. What is the purpose of an opportunity agreement? An opportunity agreement outlines the terms of a business investment or purchase to ensure legal clarity and protection for both parties.

2. Is a business opportunity the same as a franchise? No. A business opportunity allows independent operation under your own brand, while a franchise requires adherence to the franchisor’s system and branding.

3. Do I need a lawyer for an opportunity agreement? Yes, it's advisable to consult a business attorney to ensure the agreement is compliant with local laws and protects your interests.

4. Are business opportunities regulated? Yes, in many states, business opportunities are subject to disclosure, registration, and cancellation rules.

5. Can directors use business opportunities for personal gain? Not without proper agreements. Corporate opportunity agreements can waive fiduciary claims and outline when it's acceptable to pursue external opportunities.

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