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Understanding What Happens to Your Business Contracts When Selling

When selling your business, it’s crucial to understand what happens to your business contracts when selling. Whether you are completing an asset sale or a share sale, existing contracts can significantly impact the transaction and must be carefully reviewed. This guide explains how contracts are transferred, what clauses to check, and how to ensure a smooth, legally compliant sale process

How Do Contracts Transfer in Asset Sales versus Share Sales?

The transfer of contracts depends largely on the type of sale you’re undertaking. In an asset sale, you sell specific business assets, such as equipment, stock, or goodwill, but the contracts usually do not automatically transfer to the buyer. Instead, each contract must be individually assigned or novated, often requiring the other party’s approval. This can be a time-consuming and delicate process.

By contrast, in a share sale, you sell the shares of the company itself. Because the company remains the same legal entity, most contracts stay with the business automatically. However, ongoing obligations and liabilities under those contracts remain with the company—and therefore with the new owners. This can have significant implications depending on the contract terms.  There can also be change of control clauses (which are clauses that come into play when the shareholders of the contracting party change) and they need to be considered on a case-by-case basis.

When Is Consent Needed to Transfer Contracts?

Many contracts contain clauses that require third-party consent before they can be assigned or transferred or before a change of control occurs. This consent is often required to protect the other party’s interests and ensure the contract continues smoothly.

If consent is needed but not obtained, the transfer might be invalid or trigger a termination right. This can delay or even derail the sale. Identifying which contracts require consent early in the sale process and managing these negotiations carefully is essential to avoid last-minute complications.

Which Contract Clauses Should You Review Before Selling?

Before proceeding with a sale, it’s critical to review your contracts thoroughly. Look out for clauses that might affect the transfer or continuation of contracts, such as:

• Assignment or transfer clauses — Do they allow or restrict transferring the contract?
• Change of control provisions — Do they allow termination if ownership changes?
• Termination rights — Could the contract be ended because of the sale?
• Confidentiality and non-compete clauses — Do they continue to apply after the sale?

Understanding these clauses helps you anticipate risks and negotiate solutions that protect your business value.

How Can You Avoid Disputes Over Contract Transfers?

Disputes about contracts are one of the most common reasons business sales fall apart or are delayed.

To minimise risk:

• Communicate openly with counterparties about the sale and contract transfers.
• Seek early legal advice to identify potential issues.
• Prepare documentation carefully to comply with contract terms.
• Plan for contingencies if consent is withheld or clauses are triggered.
• Consider conditions in the sale agreement that will allow a period of transition before completion occurs.

Proactive management of contract issues can help ensure the sale proceeds smoothly and both parties remain confident in the transition.

Selling your business involves many moving parts, and contracts are a crucial piece of the puzzle. Handling contract transfers carefully protects your business reputation and financial outcomes.

Ensure a smooth transition—book a contract review with us today at  or 1300 033 934.