Business Purchase Agreement Review: 15 Terms Buyers and Sellers Should Understand Before Signing

The definitive purchase agreement is one of the most important documents in a business acquisition.

It turns the commercial understanding between buyer and seller into legally enforceable obligations.

Purchase price is important, but the agreement also determines what transfers, which liabilities remain, what the parties promise, how closing adjustments work, and what happens if problems emerge after closing.

Transaction-specific legal advice is essential because the appropriate terms depend on the structure, business, jurisdiction, and negotiated risk allocation.

1. What Exactly Is Being Purchased?

The agreement should clearly identify whether the transaction is:

• An asset purchase
• An equity purchase
• Another negotiated structure

That decision affects nearly every other provision.

2. Purchase Price

The headline price should be coordinated with:

• Cash at closing
• Seller financing
• Earnout
• Escrow
• Working-capital adjustment
• Other consideration

3. Included and Excluded Assets

In an asset deal, identify whether the purchase includes:

• Inventory
• Equipment
• Vehicles
• Intellectual property
• Customer contracts
• Trade names
• Domains
• Goodwill

4. Assumed and Excluded Liabilities

The buyer should understand which obligations are being assumed.

The seller should understand which obligations remain.

Ambiguity in this area can create significant post-closing disputes.

5. Working Capital

Many transactions assume the company will deliver a normal level of operating working capital.

The agreement may address:

• Accounts receivable
• Inventory
• Accounts payable
• Accrued expenses
• Target working capital

6. Closing Adjustment

Purchase price may be adjusted after closing based on final:

• Cash
• Debt
• Working capital
• Transaction expenses

The agreement should define the calculation and dispute process.

7. Representations and Warranties

The seller may make contractual statements regarding:

• Financial statements
• Taxes
• Contracts
• Employees
• Litigation
• Intellectual property
• Compliance

Buyers may make their own representations regarding authority, financing, and other matters.

8. Disclosure Schedules

Disclosure schedules identify exceptions to representations and provide transaction-specific information.

They should be prepared carefully rather than treated as last-minute administrative work.

9. Indemnification

The agreement may define when one party must compensate the other for specified losses.

Important concepts can include:

• Caps
• Baskets
• Survival periods
• Excluded losses
• Claim procedures

10. Escrow or Holdback

A portion of consideration may be held after closing to support certain claims or adjustments.

The parties should understand:

• Amount
• Duration
• Release conditions
• Claim procedures

11. Seller Financing

If the seller carries part of the purchase price, additional documents may define:

• Principal
• Interest
• Payment schedule
• Security
• Guarantees
• Default
• Subordination

12. Earnout

If part of the price depends on future performance, the agreement should define:

• Metric
• Measurement period
• Accounting rules
• Payment timing
• Operating control
• Dispute procedure

13. Closing Conditions

The parties may require completion of conditions such as:

• Financing
• Third-party consents
• Lease approval
• Regulatory approvals
• Required transaction documents

14. Seller Transition

Training and transition should be defined clearly.

Consider:

• Duration
• Hours
• Compensation
• Customer introductions
• Employee transition
• Post-closing consulting

15. Post-Closing Restrictions

Depending on applicable law and the transaction, parties may negotiate restrictions concerning competition, solicitation, confidentiality, or use of intellectual property.

These provisions should be reviewed carefully because enforceability varies.

Do Not Rely Only on the LOI

The LOI may establish the general deal framework.

The purchase agreement determines the detailed legal obligations.

Terms that appeared simple at the LOI stage can become substantially more complex during drafting.

Buyers Should Not Treat Due Diligence as a Substitute for Contract Protection

Due diligence helps identify risk.

The purchase agreement determines how many of those risks are allocated.

Both processes matter.

Sellers Should Not Sign Statements They Cannot Support

Before signing, sellers should understand the representations being made and whether company records support them.

Review the Entire Economics of the Agreement

A transaction with a high headline purchase price can still contain significant:

• Deferred consideration
• Contingencies
• Escrow
• Working-capital adjustments
• Post-closing exposure

Buyers and sellers should understand the practical economic outcome, not merely the first page of the agreement.

Frequently Asked Questions

What is the most important part of a business purchase agreement?

No single provision controls the entire transaction. Buyers and sellers should understand the complete interaction among purchase price, structure, transferred assets or equity, liabilities, working capital, representations, indemnification, closing conditions, and post-closing obligations.

Should a lawyer review a business purchase agreement before signing?

Yes. A definitive purchase agreement creates significant legal and economic obligations and should be reviewed by qualified transaction counsel familiar with the specific deal and applicable law.

Can the final purchase price change after closing?

Potentially. Some transactions include working-capital, cash, debt, transaction-expense, or other post-closing adjustments that can change the final consideration under the agreement.

A purchase agreement determines price mechanics, transferred assets or equity, liabilities, working capital, representations, closing conditions, and post-closing risk.