Partnership for the Good of Your Business

Which contracts may continue or end with a business transfer?

On Behalf of | Jan 27, 2022 | Business Succession |

Succession plans generally include reviewing your business’s existing contracts. Some agreements may stay with your business and transfer to its new owner. As noted by, when selling a business, the sale agreement could also specify which liabilities a successor assumes.

A commercial lease, for example, may transfer with the business. Without it, a new owner may lose an advantageous real estate location that brings in both new and repeat customers. Successors generally also agree to take over outstanding loans and accounts payable items as part of the sale.

Which agreements may terminate during a business transfer?

Before transferring ownership, you may need to end some business contracts. As reported on the American Bar Association’s website, a new owner may not wish to assume agreements that you personally guaranteed.

If your business has contracts with members of your family, a successor may not wish to keep them. You may need to end arrangements that could pose a conflict of interest. Employment contracts with relatives may also require careful consideration before transferring a business to a new owner.

Which contracts may need revised terms?

Provided your successor wishes to maintain them, you may need to revise existing vendor and supply contracts. If your business leases assets or equipment from a company owned by a relative, a revised contract may need to show no conflict of interest exists.

Revised contracts may also address confidentiality or noncompete clauses for existing employees. If a relative works for the business or a related company, he or she may need to sign an agreement to protect trade secrets or intellectual properties.

A business sale or transfer may require a thorough review of an organization’s existing IPs, assets and liabilities. Transfer negotiations may include discussions focused on keeping certain agreements “as is” or revising their terms to prevent conflicts.


FindLaw Network