Business notes refer to legal contracts used to record the purchase or sale of a registered company. These documents record details of the transaction, owner contact information, and details of business assets transferred in the sale or used as collateral to secure financing.
Business notes are essential when business owners sell the company using seller carry back financing. Owner-financing is often used when buyers cannot obtain 100-percent financing through banks.
When sellers carry full or partial financing, customers remit payment installments over a predetermined time frame. Owner will sell contracts generally extend for 2 to 4 years but can be established to meet the needs of all parties involved. Upon completion of the purchase contract, buyers obtain bank financing for unpaid balances.
- It is recommended to get legal counsel when entering into seller carry back financing contracts to ensure loan documents are a legally-binding and proper recording of the sale. Business notes usually consist of several documents including the following:
- Sales Contract Purchase Agreement: This is the most common arrangement used when buying a business entity. The purchase agreement records details about the firm; description of business assets transferred to the new owner; and contact information for each person involved in the transaction.
- Sales contracts document financing details including purchase price, payment amounts, payment schedule, interest rate, and late fees. Business sale contracts should always include a default clause outlining consequences if buyers default on loan terms.
- Promissory Note: Records the buyer’s promise to pay and contains information about finance arrangements. Promissory notes include information similar to sales contracts such as purchase price, payment terms, interest rate, and contract termination date.
- Security Agreement: Records details of business assets used as collateral for financing. Features include property descriptions, purchase date, purchase price, and each asset make, model, and serial number. Security agreements are also used to record duties and obligations of both buyer and seller to commence with the sale.
- Recorded UCC-1 Statement: The Uniform Commercial Code (UCC) governs statements that include personal property used as collateral to secure financing. The UCC-1 statement protects sellers’ rights to reclaim the collateral property if buyers default on loan terms.
- This report records property transfers included in the sale such as office equipment, business equipment, and personal property owned by the seller. UCC-1 statements must be registered with the Secretary of State.
- Lease Agreement and Assignment: When business owners lease space from a third party they must assign the rental agreement to the new owner to be released from their financial obligation. The buyer assumes the contract and is responsible for future payments. Contract assignments are also required when sellers own the building and lease space to new owners.
- Closing Statement: Used to record ownership transfer and property title to the buyer. This document summarizes closing costs and records the party responsible for paying settlement fees.
Additionally, business purchase documents should be accompanied by accounting records, company tax returns, and a business insurance policy issued in the buyer’s name. Each report in the business notes package should be signed, notarized, and recorded through appropriate courts.