According to a Forbes article, the number of small business purchases has gone up 5% year-over-year, and the value of those purchases has gone up 15%. This statistic signals a strong market and the abundance of buyers. The average time to sell a business is dropping to 168 days, according to a March 2025 LinkedIn article.
Business transactions need a lot of legal paperwork to keep everyone safe. The paperwork prescribes business sale and purchase agreements, which are extremely important in any transaction since they comprise the terms of the entire contract, obligations of both parties, and conditions for completion. Consult a business sale and purchase agreement attorney to protect your interests. These lawyers draft, review, and negotiate the agreement to avoid costly mistakes and disputes.
When buying or selling a business, it’s important to know the basic rules that govern this important agreement. The agreement is supposed to protect you in every way, from clearly stating how the purchase price is calculated to specifying what each side must do when the trade is done. Clauses that say what the seller will do and what they won’t do help protect your investment.
This article will explain the terms to look out for in a business sales and purchase agreement.
Key Definitions and Terminology
In the world of buying and selling businesses, both sellers and buyers should be acquainted with definitions and terminologies. Examples of such are “assets,” i.e., everything that a business has, and “liabilities,” i.e., its debts. Knowledge of these concepts makes it easier for you to understand the transaction.
You will encounter the phrase “due diligence” when referring to the process of investigating a business to purchase it. This practice checks if you truly understand what you are buying. “Purchase agreement” refers to a contract that describes the terms of the sale, and “contingencies” refers to the requirements that must be fulfilled in order for the sale to take place.
Both parties can ascertain the business’s state by learning about “representations and warranties.” The concept of indemnification should also be studied. This concept protects against future claims.
Purchase Price and Payment Terms
According to law firm Peterson Watts Law Group LLP, you can have a smoother experience with the business world if you can predict what will happen next. The payment terms and pricing should state the business’s cost, payment date, and payment method. You can’t just declare a price without supporting documents on how you came to that figure. You need to make certain that both sides are safe from misunderstandings, potential disagreements, or extra costs.
An agreement for the purchase price and payment terms is critical in any sale of business. You must settle on a fair price for the business with respect to its assets and liabilities. The business sale price must also be fair according to the current market situation.
Be clear in your understanding of the payment terms and whether they will be in lump sum payments or installments. The document should explicitly state the payment dates and any possible contingencies that would arise in the case of finance approval or performance milestones, etc.
There could be price adjustments for changes in inventory or other factors. The document should specify any deposits or earnest money put forth to keep the deal alive.
Representations and Warranties
When negotiating the sale of a business, it will be important for you to secure accurate representations and warranties from either party as to its state.
These statements form an integral part of your agreement, providing assurance that the seller’s statements about the assets, liabilities, and current state of operation are accurate.
The transaction is usually accompanied by warranties surrounding financial statements, compliance with the law, and ownership of the assets.
Any misrepresentation might constitute a breach of contract, in which case you could sue for damages.
Writing these representations clearly in the agreement and specifying what they exactly imply for you constitutes your protection.
Conditions Precedent to Closing
Before the sale can be completed, a number of requirements must be met so that both sides can keep their promises in the business purchase agreement.
These criteria include receiving approval from regulators to close, completing due diligence, and getting money, if needed.
Depending on how the business is doing, it can be required to settle certain disputes or finish some important contracts.
The representations and warranties contained in the agreement should be verified as to their truthfulness and correctness.
Non-fulfillment of these conditions before the closing date may result in delays or even termination of the agreement.
Post-Closing Obligations and Indemnification
The end of the transaction is a big deal, but your work isn’t done yet. You still have to take care of things after the closing, such as moving assets, changing licenses, and following all the rules.
Anything left undone will compromise the business in the future, so timely management of these functions becomes important.
Indemnifications form one of the other prominent issues. Usually, one has to indemnify a buyer for any claims arising out of the prior operations of the business. This means bearing any loss arising from claims that can come from breach of warranty or concealed liabilities.
Knowing these obligations will help minimize any risk on your part and benefit all the parties involved. Have a lawyer assist you so that you are completely aware of all your post-closing duties and liabilities that could possibly fall upon you.
