Business transfer contracts, easily missed legal points.

Law firm Veat drafted a sales and purchase agreement at the request of a cosmetics brand company (hereinafter referred to as the “client”).

The client intended to reorganize its business structure by transferring its unique cosmetics brand to a related company within the group. To this end, it decided to transfer the brand and related assets and personnel through a sales and purchase method.

The client requested legal advice as to whether assets could be transferred at their book value (the asset valuation amount according to accounting principles). Accordingly, Law firm Veat reviewed various laws and regulations, including tax laws, the Commercial Code, and the Act on Fair Trade (hereinafter referred to as the “Fair Trade Act”), to analyze whether the transfer at book value was lawful.

Furthermore, since a sales and purchase is not simply the transfer of assets but should focus on maintaining the continuity and stability of the existing business, Law firm Veat prepared clauses to ensure that the transfer of business rights and the succession of employment were carried out with legal stability.

What is a Sales and Purchase Agreement?

A sales and purchase agreement is a contract intended to transfer all or part of a specific business (operation). Here, "operation" encompasses not only the act of producing or providing goods or services, but also the physical and human assets, trading relationships, brand value, and the entire operation.

Therefore, it does not simply transfer goods or assets, but transfers the entirety of rights and obligations associated with the operation. This includes, for example, physical assets such as equipment and inventory, as well as intangible assets such as business rights, brand, customer information, and know-how, as well as all business activities, including transactions with suppliers and employment contracts.
 

Key Considerations Requiring Careful Review in Sales and Purchase

Since a sales and purchase is intended to continuously operate the existing business, maintaining relationships with customers and suppliers, and utilizing the existing brand are important factors.  

A sales and purchase agreement generally includes clauses regarding the transferrable assets, purchase price, succession of receivables and payables, treatment of employment relationships, confidentiality and non-competition clauses, and the conditions and procedures of the contract. The possibility of disputes or misunderstandings increases if the items included and excluded from the transferrable assets are not clearly defined.

Furthermore, according to Article 207 of the Commercial Code, unless there is a special agreement, the assignee may be responsible for the assignor's existing liabilities. This could lead to unexpected financial burdens, so a clear agreement on debt succession is important.

Thirdly, when transferring a business, it is necessary to clearly specify whether the existing employees will be succeeded, in compliance with the Labor Standards Act. Failure to properly handle this may lead to legal disputes or damage to the company’s image.

Fourthly, a sales and purchase involves the sharing of sensitive business information and know-how, making confidentiality and non-competition clauses essential.

Finally, it is also important to create specific and realistic contractual terms to increase the enforceability of the contract. 

As sales and purchase agreements involve various legal, financial, and operational risks, it is essential to prepare for them comprehensively and to conduct legal advice from a legal expert before and during the process to ensure a safe and efficient transaction.
 

Sales and Purchase Legal Partner, M&A Specialized Law Firm Veat

Law firm Veat provides customized legal advice based on the experience accumulated in handling various industries' M&A and sales and purchase cases.  

A sales and purchase involves various laws and regulations such as the Commercial Code, tax laws, and the Labor Standards Act, making collaboration among experts in various fields essential. Law firm Veat utilizes its internal network of experts to approach the matter from multiple angles and provides optimal legal advice.

In particular, it thoroughly reviews potential legal risks from the drafting stage of the contract to provide efficient legal advice services that allow the client to focus on their business without worrying about legal problems.

This legal advice experience demonstrates the expertise of Law firm Veat, which can be effectively utilized in complex contracts such as M&A and sales and purchase.

If you are struggling with legal issues such as comprehensive sales and purchase, please feel free to contact Law firm Veat. 

The following is a case study related to this matter, which can also be checked on the Law firm Veat blog.

- Sales and Purchase Agreement, Easily Missed Legal Points

​Thank you.

Law firm Veat