Business Transfer Agreement Template (From Individual to Corporate, LLC Conversion)

This is a “Business Transfer Agreement” for an individual business owner transferring their business to a corporation.

It can also be used when an individual business owner becomes a corporation.

On the corporate side, we have also included a template minutes of the extraordinary general meeting concerning the proposal “Consent to Transfer of All Business.”

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As soon as the transaction is concluded, the file contents of the agreement (zip format) will be downloadable.

When you double-click the downloaded file, two Word format files will appear in the folder:

Business Transfer Agreement (From Individual to Corporation).docx

Minutes of the Extraordinary General Meeting (All Business Transfer).docx

Notes and comments included. You may customize freely.

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When a company undertakes any of the following actions, adoption by a special resolution of the shareholders' meeting is required. (Company Law Article 467 paragraph 1 items 1–3. There are exceptions for special controlling companies (Company Law Article 468).)

・Transfer of all business (Company Law Article 467, paragraph 1, item 1)

・Transfer of a substantial part of the business (Company Law Article 467, paragraph 1, item 2)

・Acquisition of all business of another company (Company Law Article 467, paragraph 1, item 3)

★ Provisions Included in “Business Transfer Agreement (From Individual to Corporation)”

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Article 1 (Business Transfer)

A provision specifying the transfer of the business.

Article 2 (Transferred Assets)

A provision detailing the contents of the transferred assets.

Article 3 (Consideration and Payment Method for the Business Transfer)

A provision detailing the consideration for the business transfer.

1. Collection of Transfer Price

As with general sales contracts, for the business transfer it is crucial for the transferor company to securely collect the consideration (transfer price).

2. Consideration

Because determining the consideration can be complex, one option is to state: “The consideration for this business transfer shall be determined by mutual agreement of the parties based on the fair market value as of the transfer date, within the range of ¥○○○○ to ¥○○○○.”

Article 4 (Delivery of Transferred Assets)

Provisions regarding the delivery of the transferred assets.

1. Obligation of the Transferor to Deliver Transferred Assets

Example where delivery is conditioned on the fulfillment of “Prerequisites” and is simultaneous with payment of the transfer price.

2. Timing of Transfer

Example where the transfer of ownership and related rights occurs at the time of delivery of assets.

Article 5 (Duties of Care by Transferor; Cooperation by Transferee, etc.)

A provision regarding the duty of care by the transferor.

1. Duties of Care by the Transferor

A provision listing obligations the transferor must fulfill by the transfer date, such as the proper management of transferred assets, name-change obligations, and obtaining the consent of contracting parties to transfer the contractual position.

2. Cooperation Obligation of the Transferee

Since obtaining the name-change and consent of contracting parties requires the transferee’s cooperation, it is advisable for the transferor to set forth such cooperation obligations.

Article 6 (Non-Competition Obligation)

Provisions on non-competition obligations.

→ If it falls under the Companies Act “business transfer” or the Commercial Code “business transfer,” the non-competition obligation of the transferor arises as a matter of law.

→ For individual business owners, when engaging in a Commercial Code “business transfer,” it is necessary to confirm that the transferor does not violate non-compete obligations (Commercial Code Article 16).

→ Also, as an option, you may choose not to include non-competition provisions in the contract (leave it to Commercial Code Article 16; in that case, delete this clause).

→ It is also possible to reduce or exempt the non-competition obligation by contract.

The Commercial Code Article 16 is reproduced below.

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(Prohibition of Competition by a Business Transferor)

Article 16: A merchant who has transferred their business (hereinafter referred to as the “Transferor” in this chapter) shall, unless otherwise indicated by the parties, not engage in the same business within the same municipality (including special wards; for designated cities as specified in the Local Autonomy Act of 1947, Article 252-19, paragraph 1, the district or the combined district; the same applies hereinafter) or in adjacent municipalities for twenty years from the date of transfer.

2. If the transferor has entered into a special agreement not to conduct the same business, that effect shall last for up to thirty years from the date of transfer.

3. Notwithstanding the preceding two paragraphs, the transferor must not engage in the same business for purposes of improper competition.

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If you wish to exempt the non-compete obligation, you may include that statement as well.

(Also included are sample provisions for exempting the non-compete obligation.)

Article 7 (Representations and Warranties)

Provisions regarding representations and warranties.

Other representations and warranties may include intellectual property rights such as copyrights and patents, financials, taxes, labor, and environmental matters.

Also, you might consider adding the following phrasing. (If the parties are domestic companies who know each other well, the above may suffice.)

“The Transferor has no facts or grounds for bankruptcy, insolvency, suspension of payments, or any other initiating circumstances for bankruptcy proceedings.”

“Since the date of preparing the financial statements, there have been no facts or events that would adversely affect the transferee’s financial situation other than ordinary business debts and their causes.”

Article 8 (Prerequisites)

A provision detailing the prerequisites under which the transferee’s obligation to pay consideration arises in a business transfer.

Article 9 (Termination of Contract)

Article 10 (Damages)

Provisions regarding damages.

2. The cap on damages is the amount of the consideration for this business transfer.

Article 11 (Taxes and Public Charges; Allocation of Costs)

Provisions regarding taxes and public charges and allocation of costs.

1. Method of tax burden

Here, the burden is shifted from the transferor to the transferee as of the transfer date.

2. Method of bearing costs

Here, each party bears the portion incurred by themselves.

Article 12 (Confidentiality)

Considering the disclosure of a substantial amount of information in a business transfer, this example does not require an explicit confidentiality clause. Depending on the case, it may be prudent to limit the scope of disclosed officers or employees.

Note, Clause 2 provides that confidentiality remains for a certain period after the business transfer execution. Most business-transfer contracts typically require confidentiality to endure for a set period.

Article 13 (Personal Information)

Provisions regarding handling of personal information.

In Clause 3, it states: “From the transfer date onward, the transferor shall not possess or use personal information related to the business.”

→ If Clause 3 is unnecessary, please delete it.)

→ Provisions for corporate entities are also shown.

★ As of May 30, 2017, the revised Personal Information Protection Act came into full effect, bringing all businesses, including small and medium-sized enterprises, under its scope.

★ Our office also handles the creation of a Personal Information Protection Policy and Privacy Policy.

http://keiyaku.info/web04.html

Article 14 (Elimination of Anti-Social Forces)

Article 15 (Consultation)

Article 16 (Governing Law; Jurisdiction)

Special Provisions

Article 17 (Special Provision: Handling of Employees)

Provisions on handling of employees are established as a special provision.

→ If you do not intend to take over the transferor’s employees, please delete this special provision and related clauses.

→ If staff at this store are dispatched from another staffing agency, procedures and contract changes will occur at the dispatching agency.

1. On secondment

If employees are seconded, include provisions as above. “Among employees engaged in this business, those required by the transferee will be seconded for ○○ months,” and “Details such as names and terms of secondment will be decided by mutual agreement of the parties.”

2. Provisions for after secondment, including cases where employees are transferred after secondment and cases where transfer occurs without secondment are also described.

【Annex】

Please review the contents of the assets and modify as needed.

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★ Notes and comments included. In Word file format, you may customize freely.