Business Purchase Agreement

A Business Purchase Agreement in Hong Kong is a legally binding contract that outlines the terms for acquiring or selling a business. This includes both asset purchase transactions and full company takeovers. According to the Hong Kong Companies Registry, proper documentation is critical to register ownership changes and ensure legal compliance with local regulations. that governs the sale and transfer of a business’s assets, operations, or equity interests. It is used when a business owner (the Seller) agrees to sell either the entire company or specific components of the business to a Buyer. This may include tangible assets (equipment, inventory), intangible assets (IP, customer lists), and contractual rights.
This agreement plays a crucial role in documenting the terms of the sale and ensuring the smooth transfer of ownership and responsibilities. It is particularly important in regulated industries or when the transaction involves complex assets. Buyers and sellers should ensure that the contract is clearly structured and legally sound, with all obligations and risks properly allocated between the parties.

A standard Business Purchase Agreement in Hong Kong includes the following key clauses:

These clauses provide legal certainty and reduce the risk of disputes during and after the transaction.

A Business Purchase Agreement ensures that both the Buyer and Seller have a clear understanding of their rights, obligations, and liabilities. Without such a contract, disputes over assets, outstanding debts, or employee obligations are more likely.

This agreement also supports regulatory compliance, particularly under the Companies Ordinance (Cap. 622), Employment Ordinance (Cap. 57), and other laws governing Hong Kong business transactions. In many cases, banks, auditors, and tax authorities require a valid agreement to approve financing or tax clearance.

Ownership transfer in Hong Kong can involve either the sale of assets or equity shares, depending on the type of business. For asset sales, the Buyer takes ownership of specific business assets and may selectively assume liabilities. For equity sales, the Buyer acquires ownership by purchasing shares from the Seller, taking over the company as a legal entity.
The Business Purchase Agreement outlines the method of transfer, the timeline, the required consents, and any third-party approvals needed (landlord consent for lease assignment, customer approvals for contract novations).

The purchase price is typically negotiated based on:

Many Business Purchase Agreements in Hong Kong use a fixed base price, sometimes adjusted post-closing based on completion accounts. Businesses often engage legal and accounting experts to ensure that the calculation mechanisms comply with Hong Kong Inland Revenue Department requirements for tax reporting and assessment. with adjustments post-closing based on completion accounts or agreed financial benchmarks. Buyers often engage accountants and legal advisors to perform business valuation and negotiate price mechanisms.

Yes, non-compete and non-solicitation clauses are common in Business Purchase Agreements in Hong Kong. These clauses prevent the Seller from opening a competing business, soliciting former employees, or poaching customers for a defined period (typically 1 to 3 years).
For enforceability under Hong Kong law, such clauses must be reasonable in duration, geographic scope, and scope of restricted activity. If drafted too broadly, they may be declared unenforceable by the courts. Still in early negotiation? Download the Memorandum of Understanding to outline shared intentions and responsibilities before formalizing a sale.

A Business Purchase Agreement involves the purchase of assets and operations, while a Share Purchase Agreement involves buying the shares of a company.

The choice depends on whether the Buyer wants the legal entity or just the operational components. Asset purchases offer more flexibility and lower legal risk, while share purchases provide continuity and simplicity in contract transfers.

Common legal risks in a business purchase include:

To mitigate these risks, include strong warranties, indemnities, and closing conditions. Engage lawyers to conduct legal due diligence and verify all disclosures made by the Seller. Forming a joint venture as part of the acquisition? Download the Partnership Agreement to define profit sharing, management control, and equity splits under Hong Kong law.

To make a Business Purchase Agreement legally enforceable in Hong Kong:

It is also recommended to register the transfer of ownership or shares with the Companies Registry where applicable, and notify the Inland Revenue Department for any tax implications.

A well-drafted Business Purchase Agreement is essential for buyers and sellers navigating a business transfer in Hong Kong. It provides structure, legal protection, and financial clarity, while reducing the likelihood of post-transaction disputes. If you’re planning to sell or acquire a business, working with corporate lawyers ensures your agreement complies with Hong Kong’s legal framework. Download your Business Purchase Agreement template today to protect your interests throughout the acquisition process.