What Happens to Contracts When a Business Is Sold?

What Happens to Contracts When a Business is Sold

Understanding contract transfer in business sales – a practical guide for Phoenix entrepreneurs.

Selling or buying a business is a complex journey, and one of the most commonly overlooked — yet critical — elements of that journey involves contracts. Whether it’s vendor agreements, client service contracts, leases, or employment deals, the question that often arises is: what happens to these contracts when a business changes hands?

So What Happens to Contracts When a Business is Sold? Let’s break it down in a simple, real-world way, especially for business owners and buyers navigating the Phoenix, Arizona market — with insights drawn from local business broker Justin Turner, who’s helped dozens of Main Street businesses successfully transition ownership.

First, What Type of Sale Is It? Asset vs. Stock

Before we get into contracts, it’s important to understand the type of sale — because it directly affects how contracts are handled.

1. Asset Sale 

In an asset sale, the buyer is purchasing specific business assets (like equipment, customer lists, inventory) but not the legal entity itself. In this case, contracts do not automatically transfer. The buyer must usually renegotiate or get assigned rights through written consent from the other party (e.g., a landlord, customer, or vendor).

Example:
If you’re selling a restaurant in Phoenix and you have a supplier agreement with a local produce company, that contract won’t automatically go to the buyer. The supplier must agree to assign it.

2. Stock Sale

In a stock sale, the buyer is purchasing the ownership (shares or interests) of the business entity. That means the business stays intact — contracts, licenses, liabilities, and all. In most cases, contracts remain in force without needing assignment.

But there’s a caveat: many contracts include a change of control clause, which may require consent from the other party even in a stock sale.

 

Common Types of Contracts Affected in a Business Sale – What Happens to Contracts When a Business is Sold?

Here are the most common agreements that sellers (and buyers) should carefully review with a broker and attorney before finalizing a deal:

1. Commercial Leases

If the business operates out of a rented space, the lease is a big deal. In Phoenix, landlords usually require:

• A new lease agreement
• A lease assignment
• Or landlord approval before transfer

Tip: Justin Turner often recommends reviewing the lease as early as possible to avoid delays at closing.

2. Customer Contracts – What Happens to Contracts When a Business is Sold?

If a business offers long-term services — say, a cleaning company with recurring residential clients — buyers often want those service contracts to continue.

In asset sales, these need to be reassigned, and clients may need to give permission. This is especially true if the contract includes a “no assignment” clause.

3. Vendor & Supplier Agreements

Ongoing relationships with vendors and suppliers — like a supplier contract for construction materials — may not transfer automatically. The buyer may want to keep those relationships intact, so it’s essential to involve those vendors early in the transition process.

4. Employment Agreements

If the business has key employees under contract (e.g., a fitness center manager or a head chef), those agreements may need to be reissued or transferred. Arizona is an “at-will” employment state, but existing contracts — especially for bonuses, commissions, or non-competes — need to be reviewed and updated.

5. Licenses & Permits

While not traditional contracts, business licenses and permits also fall into this area. Most are not transferable and must be reapplied for — especially in regulated industries like food service, construction, or health & beauty.

 

How a Broker Helps with Contract Review and Transfer – What Happens to Contracts When a Business is Sold?

This is where a local broker like Justin Turner becomes invaluable. With years of experience facilitating sales across industries like home services, automotive, franchises, and professional services in the Phoenix area, he ensures nothing falls through the cracks — especially when it comes to contract obligations.

A business broker will:

• Identify which contracts are critical to operations
• Flag contracts that can’t be transferred
• Help communicate with landlords, suppliers, or clients
• Recommend legal professionals when deeper review is needed

What If a Contract Can’t Be Transferred?

Sometimes, a key contract (like a high-value client agreement or exclusive vendor deal) can’t be assigned, or the other party refuses to transfer it. In these cases, sellers and buyers have a few options:

• Renegotiate a new agreement with the third party
• Adjust the sale price if a major value driver is lost
• Offer transition support (e.g., the seller stays on temporarily to fulfill obligations)

Due Diligence is Everything – What Happens to Contracts When a Business is Sold?

Buyers should never assume contracts will just “come with the business.” During due diligence, a full contract audit is essential. This includes:

• Reading all agreements line-by-line
• Checking for assignment clauses
• Making note of termination conditions
• Identifying hidden liabilities or renewal dates

A good broker ensures this step isn’t skipped, and that Phoenix-area buyers understand how local factors (like city licensing or landlord policies) might affect the transfer process.

Tips for Business Sellers in Phoenix, AZ

If you’re a business owner planning to sell in the next 6–12 months, here’s what you should start doing now:

1. Organize your contracts – Gather all agreements and make a list.
2. Review assignment clauses – Understand which can and cannot be transferred.
3. Build strong third-party relationships – Buyers are more confident when vendors, landlords, and clients are cooperative.
4. Work with a broker early – Someone like Justin Turner can help you spot potential roadblocks before they stall a deal.

Final Thoughts – What Happens to Contracts When a Business is Sold?

Contracts are more than just paperwork — they’re the foundation of a business’s revenue, reputation, and stability. Whether you’re selling your business or buying one in Phoenix, understanding how contracts are handled during a sale is critical to protecting your investment and ensuring a smooth transition.

If you’re unsure where to start, connect with a local business broker like Justin Turner. With years of hands-on experience across Arizona’s business landscape, he can guide you through contract reviews, buyer negotiations, and the full sales process — all while safeguarding the value of your business.