Key Takeaways

  • A business purchase agreement defines the terms of buying or selling a business, including assets, liabilities, warranties, and restrictions.
  • The agreement often includes clauses for non-compete, non-solicitation, and confidentiality.
  • Due diligence, financing contingencies, and dispute resolution terms are critical elements.
  • Closing involves transferring ownership, financial settlements, and representations from the seller.
  • The agreement may cover intangible assets, intellectual property, and employee transition plans.

What is a Business Purchase Agreement

A Business Purchase Agreement, also referred to as a Business Transfer Agreement or an Offer of Business Agreement, is an agreement entered into between a seller and purchaser for rights to the business. Therefore, the purchaser is essentially taking over the company from the seller. The agreement itself incorporates the terms of the deal, what is both included and excluded in the deal itself, as well as any discretionary provisions and guarantees.

Why is a Business Purchase Agreement Important?

In the event that you are interested in purchasing a business, or in the alternative, if you own a business and wish to sell it to an interested buyer, this agreement is the most important document that explains in detail the terms of the deal. UpCounsel can provide you with all of the necessary resources to create a well-drafted Business Purchase Agreement. This type of agreement is important in the following scenarios:

  • If you wish to sell your business and you need to incorporate the terms contractually.
  • When you wish to purchase or sell a business, the agreement enables both the seller and purchaser to settle on the terms of the deal, which will be referenced in the agreement itself. This incorporates all aspects of the deal itself.
  • The agreement sets forth any restrictive clauses, including a covenant not to compete, non-solicitation, confidentiality, and non-disclosure clauses. These guarantees are important to reference in an agreement to ensure that both the seller and purchaser abide by such restrictions.

For example, before entering into an agreement, a third-party vendor may need to complete a transaction for the sale of goods/services as promised between the seller and vendor prior to the seller transferring the business to the purchaser. If the business exchange takes place prior to the transaction with the third-party vendor, such terms and conditions should be put forward in the Agreement.

What's Included in a Business Purchase Agreement?

Restrictive Clauses

The Agreement may incorporate four diverse prohibitive statements or guarantees, including the following:

  • Covenant not to compete
  • Non-solicitation
  • Confidentiality
  • Non-disclosure

Assumed Liabilities

When a purchaser buys a business from the seller, the purchaser takes on responsibility for the business's liabilities, including any outstanding loans, records payable balances, or funds owed to a current vendor. The Assumed Liabilities clause is generally stated in all Agreements.

Assumption and Assignment Agreement

The purchaser claims 100 percent of the value of the company and has consented to all items mentioned in the agreement. Therefore, both parties to the transaction agree to the following:

  • The sale of the business itself, including the assets and liabilities of the business
  • No other unknown assumption of liabilities, unless otherwise stated in the agreement
  • The purchase price
  • All representations, restrictive clauses, and warranties identified in the agreement
  • Customization of expenses
  • Survival of the business itself
  • The governing laws of the region in which the business is situated
  • Assignment
  • Notices
  • Any other miscellaneous matters

Sale of Assets

The seller consents to offer and exchange, and the purchaser consents to purchase the business.

Financing and Contingencies

The business purchase agreement may include provisions addressing how the buyer will finance the transaction. Common clauses include:

  • Earnout agreements, where part of the purchase price depends on the business achieving performance goals
  • Financing contingencies, allowing the buyer to withdraw if financing is not secured
  • Escrow arrangements, holding funds until post-closing obligations are fulfilled

These provisions protect both parties and ensure that the buyer has a feasible path to funding the acquisition.

Due Diligence and Disclosures

Before finalizing a business purchase agreement, buyers typically conduct a due diligence review to verify the financial, legal, and operational status of the business. The agreement may outline the scope of this review and require the seller to disclose certain material information, including:

  • Financial statements and tax returns
  • Business licenses and regulatory compliance
  • Existing customer and vendor contracts
  • Pending litigation or legal disputes
  • Lease agreements and real estate obligations
  • Employment agreements and benefit plans

This process ensures transparency and helps the buyer assess potential risks or liabilities prior to closing.

What Happens at Closing?

Deliveries at Closing

The purchaser should pay the seller the agreed upon amount stated in the agreement. The seller should convey to the purchaser a Bill of Sale, exchanging title to the seller. The parties agree that there will be no changes in the lease, no additional charges, and no utility payments due on the date of closing.

Telephone Numbers

  • On the date of closing, the seller agrees to allocate to the purchaser the seller's business phone number and fax number.
  • In addition, on the date of closing, the purchaser will be responsible for all expenses relating to the telephone/fax bill, as well as those expenses associated with registering the business, yellow page listing fees, and any other related expenses.
  • After the closing date, the purchaser will advise any callers that the purchaser now operates the business; however, this disclosure can only be made with the seller's express consent.

Representations

The seller makes the following representations to the buyer:

  • The seller agrees that he/she is the true owner of the business and currently has marketable title to all of the assets of the business.
  • The seller has not entered into any other contracts relating to the business, and there are no other outstanding contracts regarding the business dealings.
  • The seller agrees that there are no judgments, liens, or any other pending legal actions against the business.
  • There are no other business names/addresses and have been no additional names or locations within three years of the date of the agreement.
  • The property to be transferred to the buyer is located at the seller's place of business and will remain there at the time of closing.
  • The business itself is not enrolled in a pension or retirement plan or program in which the seller can benefit in the future.
  • The seller agrees that the business is solvent.

Survival of Representations

All items and restrictions contained in the agreement will remain in place after the date of closing.

Dispute Resolution and Governing Law

A well-drafted business purchase agreement should include a dispute resolution section outlining how conflicts will be handled. Common methods include:

  • Arbitration or mediation before litigation
  • Choice of law provisions specifying the state whose laws will govern the agreement
  • Forum selection clauses to determine the jurisdiction for any legal proceedings

Including these clauses helps prevent costly and protracted legal battles.

Post-Closing Obligations

Many responsibilities continue after the closing date. The agreement should define:

  • Transition assistance, where the seller agrees to help the buyer for a specified period
  • Employee transition terms, including which staff will remain and any agreed benefits
  • Transfer of licenses and permits, to ensure compliance after ownership changes
  • Post-closing indemnification, where the seller may be responsible for unknown pre-closing liabilities

These terms help ensure a smooth handover of the business and continuity of operations.

Frequently Asked Questions

1. What is a business purchase agreement? It’s a legal contract outlining the sale of a business between a buyer and a seller, including terms, conditions, and liabilities.

2. What’s the difference between asset and stock purchases? In an asset purchase, the buyer acquires specific assets and liabilities. In a stock purchase, the buyer acquires ownership in the form of shares.

3. Who drafts the business purchase agreement? Either party can draft the agreement, but it's typically created by the buyer’s legal counsel and negotiated with the seller.

4. Is a business purchase agreement legally binding? Yes, once signed by both parties, it becomes enforceable under the governing state law outlined in the agreement.

5. Do I need an attorney for a business purchase agreement? While not legally required, hiring an attorney is highly recommended to protect your interests and ensure legal compliance. You can find one through UpCounsel’s marketplace.

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This article has provided you with a basic overview of what you need to know when entering into a Business Purchase Agreement. Whether you are the seller or purchaser, it is important to know your rights and responsibilities during a time like this.

If you need help with creating a Business Purchase Agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and, on average, have a total of 14 years of legal experience, including working with or on behalf of companies like Google, Menlo Ventures, and Airbnb.