Business Sales Terminology

A clause used in a note and/or security agreement that gives the lender the right to demand payment in full if a certain event occurs such as default or if the ownership of the business changes without the lender’s consent; sometimes referred to as a “due on sale” clause.

The act of accepting an offer which results in a binding contract.

A written instrument that adds something to a written contract.

Also known as an “Exclusive Agency Listing.” A written instrument giving the agent the right to sell property for a specified time. However, the owner may sell the property to a buyer who was not introduced to the business by the agent without the payment of a commission to the agent.

One acting under the authority of a principal to do the principal’s business. The agent must use his or her best efforts and keep the principal fully informed of all material facts.

A breakdown of the purchase price usually required when a business is sold. For example, the allocation might contain a breakdown of the inventories, fixtures and equipment, leasehold improvements, goodwill, and any other purchased assets. Generally, value is placed on each component of the allocation and the buyer and seller agree on this breakdown. The IRS requires that such an allocation be a part of the buyer’s and seller’s tax return when a sale takes place; Form 8594, the “Asset Acquisition Statement,” must be filed with the buyer’s and seller’s tax return for the year in which an applicable asset acquisition takes place.

A written instrument that changes something previously agreed to. (This is different than an addendum.)

1. A reduction in a debt obligation by periodic payments covering interest and part of the principal. 2. The writing off or expensing of the cost of intangible assets over a period of time, usually in years. Amortization of intangible assets vs. depreciation of tangible assets. Intangible assets purchased, such as goodwill and covenants-not-to-compete, can be written off over 15 years.

Asset purchase agreement.

A gain in value due to any cause. Real estate is an asset that often appreciates in value over time.

The submission of a disputed matter for resolution outside the normal judicial system. It is often speedier and less costly than courtroom procedures. An arbitration award can be enforced legally in court. If one or more parties cannot agree on a single arbitrator, they can select arbitrators under the rules of the American Arbitration Association (AAA). Arbitration clauses are often inserted into contracts as the forum to settle disputes arising out of the contract.

The total amount for which a business or an ownership interest is offered for sale.

This term has two definitions. The proper definition depends on its usage: How a business owner transfers ownership of tangible and intangible assets to another owner without transferring the ownership structure. The sale of a business enterprise at a price based solely upon the value of the tangible assets. A sale of a business in which the buyer acquires only specific assets (and possibly assumes some liabilities). Unlike a stock sale, the buyer obtains the assets usually free and clear of any liabilities of the seller. The buyer also gets the advantage of a “step-up” based on the assets purchased and their allocated fair market values.

A transfer in writing of an interest in property or other things of value from one person or entity to another.

One who is appointed, in writing, to perform a specific act for and in place of another; e.g., signing documents for someone in their absence.