Business Opportunity Agreement: What You Need to Know
A business opportunity agreement is a business investment that is packaged and ready for the buyer to begin business.3 min read
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
- Goodwill and business name
Types of Excluded Assets
- Accounts receivable
- Cash and bank balances
- Records of excluded assets
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.
- Environmental compliance
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.
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.
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.
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