Drafting a Sole Proprietorship Purchase Agreement

A sole proprietorship purchase agreement formally records the acquisition of a sole proprietorship between the seller and the buyer. Because a sole proprietorship does not have shares, you cannot transfer the business by selling shares. The acquisition therefore always takes place via an asset-liability transaction: you buy and sell the individual components of the business, such as inventory, stock, the trade name, goodwill, and the customer base. You need this document as soon as you wish to buy an existing sole proprietorship or sell your own and want to precisely record what is being transferred, at what price, and under what guarantees.

The difference compared to a share transaction is fundamental. In the case of a sole proprietorship, only that which you explicitly specify is transferred; existing debts and contracts generally remain with the seller, unless you agree otherwise. It is precisely this demarcation that makes a carefully drafted purchase agreement indispensable. Without a conclusive description of what is being transferred, disputes often arise after the takeover regarding who is responsible for what.

The heart of the purchase agreement is a precise specification of the components to be transferred. For each component, it must be clear that it is being transferred and in what manner this takes place, because the legal act of delivery differs by type of asset. Movable property such as inventory and stock is delivered by transfer of possession; receivables are delivered by assignment. In addition to the assets, you regulate the purchase price, the method and timing of payment, the acquisition date, and the actual transfer.

Furthermore, a good agreement should include guarantees from the seller regarding, for example, ownership of the assets, the absence of liens, and the accuracy of the provided figures. A non-compete clause prevents the seller from immediately starting a similar business after the acquisition and taking your customer base with them. Indemnities distribute the risk for obligations arising before the acquisition date. Together, these provisions determine whether, after the acquisition, you have actually purchased the business you had in mind.

Existing contracts of the sole proprietorship do not automatically transfer. The transfer of an agreement, also known as contract assignment, is regulated in Article 6:159 of the Dutch Civil Code. Two requirements apply: the transfer must take place by deed between the seller and the buyer, and the counterparty to the contract must cooperate in the assignment. Without such cooperation, the contract assignment does not take place, and the seller remains a party to the contract.

In practice, this means that you must timely identify which contracts are essential for the continuation of the business, such as leases, supplier contracts, and subscription contracts. For each of these contracts, you arrange for the consent of the counterparty, preferably recorded in writing. Although cooperation can also be granted tacitly, written confirmation prevents later uncertainty regarding whether the acquisition took place legally.

If the sole proprietorship employs staff, a transfer of undertaking may occur. In that case, the employees transfer to the buyer by operation of law, retaining their terms and conditions of employment. This is mandatory law; you cannot contract it away. The purchase agreement must therefore clearly state which employees are involved and how the parties handle accrued rights such as vacation days and pension.

In addition, licenses, IP rights, and ongoing obligations deserve attention. Not every license is transferable; sometimes the buyer must submit their own application. Intellectual property rights, such as a trademark or domain name, must be transferred separately. Stipulate in the agreement who is responsible for obligations arising before the acquisition date, so that the buyer is not unexpectedly held liable for the seller's old debts.

For an asset and liability transaction, there is no statutory requirement for a notarial deed, unless specific assets require it. If you transfer real estate, a notarial deed and registration in the public registers are required for that component. For the other components, a private agreement is in principle sufficient. Nevertheless, a written agreement is always advisable: it serves as proof of what has been agreed and is also necessary for the assignment of the contract by deed.

After the transfer, the buyer arranges for the registration of the business with the Chamber of Commerce, and the seller updates their own registration. Do not forget the tax implications either: the transfer of assets may have VAT consequences, and for an entire business, the rules for the transfer of a going concern may apply under certain conditions. Coordinate these points before you sign.

The greatest risk lies in an incomplete or inaccurate description of what is being transferred. Anything not explicitly named is not included. This can result in a crucial contract, a license, or the trade name being left behind, even though the buyer has paid for it. A second major risk is liability for hidden debts and obligations; without clear indemnities and guarantees, the buyer may end up paying for problems from the past.

The absence of a non-compete clause is also risky: the seller can then use the accumulated knowledge and relationships to start a new business and erode the acquired goodwill. Finally, disputes frequently arise when the cooperation of third parties in the assignment of the contract is not regulated in writing. A well-drafted sole proprietorship purchase agreement covers these risks in advance, rather than having to fight them out afterwards.

An acquisition seems simple on paper, but the legal consequences are far-reaching. A tailored document ensures that the assets to be transferred are comprehensively described, that guarantees and indemnities distribute the risk evenly, and that the assignment of contracts, personnel, and permits are properly arranged. This prevents an acquisition that begins in good faith from later escalating into a conflict over who is responsible for what.

MKB Juristen drafts your custom sole proprietorship purchase agreement, tailored to your specific situation and for a fixed price upfront. This means you know exactly where you stand. Contact us to legally secure your acquisition.