Jump to Section
A business purchase agreement is a legal contract specifying terms for buying or selling a business, including conditions and obligations. During a business acquisition, business purchase agreements are vital for safeguarding the rights of both parties. They are an essential element of every enterprise sale because they provide legal stability, clarity, and predictability for the duration of the transaction. Read this blog further to learn more about business purchase agreements.
What is a Business Purchase Agreement?
Business purchase agreements , also called BPAs or business transfer agreements, are legal contracts that transfer ownership from the seller of a business entity to a buyer. This type of agreement contains provisions that govern the terms of sale.
A business purchase agreement can come in the form of a stock purchase agreement or asset transfer agreement.
Steps to Secure and Safeguard Your Business Purchase Agreement
Yes, a buyer can back out of a business purchase agreement before signing. Until the buyer signs it, they can legally back out of the agreement you have with them. When ready to purchase your business, buyers must complete preliminary steps before signing the purchase agreement, which will safeguard you both in several ways.
Here are a few steps for discouraging this situation from arising:
- Require a Letter of Intent. Letters of intent are legal documents summarizing the proposed business purchase agreement terms, including the purchase price, due diligence terms, and deposit amount. Buyers typically draft their own documents and submit them to you for approval. This action indicates their serious intent to purchase the business, so sellers should request one from buyers.
- Request for a Deposit. Letters of intent are not legally binding, nor do they guarantee that a sale will occur. It ensures that the seller will not advertise their business for sale during ongoing active negotiations, and you can require them to pay you a deposit during this time. However, if the negotiations do not result in a purchase agreement, you will refund the buyer’s deposit.
- Discuss Financing. A signed letter of intent allows buyers to present a sincere interest in the business for capital lending. They may also submit the letter to their lawyer when determining if the terms are fair when acquiring your business. In general, a letter of intent is more beneficial to the buyer than to the seller.
- Incorporate a Confidentiality Agreement. A letter of intent should include a confidentiality clause prohibiting the buyer from using or disclosing your information to a third party if the sale does not happen. This protection is the best option for a seller while attempting to secure a purchase agreement with a buyer.
The only genuine concern you should have during these negotiations is maintaining the confidentiality of your business’s sensitive information. Given that the buyer will be performing due diligence and examining your company’s financial and customer information, you don’t want them to walk away from the deal and then use this information for financial gain.
What’s Included in a Business Purchase Agreement?
Buyers and sellers must adhere to a specific legal process when selling a business. Business purchase agreements initiate the legally binding purchase of a company after receiving a letter of intent. This type of agreement requires the buyer to purchase the business per the agreement’s terms and conditions.
Although business purchase agreements are complex, they generally contain several standardized provisions. The most vital element to remember is that while it’s best to leave contract drafting to a lawyer, it’s not a bad idea to establish a basic working knowledge of the terms.
- Party Identification: This provision appears at the beginning of the business purchase agreement. It contains the legal names and contact information for the seller and buyer. Ensure you identify all parties correctly since legal complications can result otherwise.
- Business Description: Detail an overview of the company and its operations in this provision. It should contain a statement attesting to the seller’s legal authority to authorize the sale, as well as other legal representations and warranties.
- Financial Terms: This provision includes the purchase price, any deposits required by the seller, and the date and time of the transfer.
- Sale: It is critical to define the type of sale in this section and the assets included and excluded from the sale. This provision will also include a section on property transfers detailing the condition and value of assets, such as equipment, tools, and property.
- Covenants: This provision details the seller’s obligations surrounding the closing, including taxes, loans, fees, benefit transfers, and salaries. Additionally, you can use this section to list buyer and seller agreements and protective clauses, such as a non-competition agreement.
- Transfers: The buyer and seller require a clear understanding of who is responsible for what, including the seller’s role, new employee training, and customer obligations. You can also detail the need for a bill of sale finalization to serve as the transaction’s conclusion.
- Third-Party Brokers: If third-party brokers were used, this provision should include the legal names and contact information for those intermediaries and the party responsible for broker compensation.
- Closing: This section of the business purchase agreement is typically straightforward as it addresses logistics, the closing date, and time. Additionally, it executes title transfers and specifies the money to be paid at closing.
- Representations and Warranties: Representations and warranties are promises made by the seller about the business being sold. These promises can include statements about the business’ assets, liabilities, financials, and operations. The point of this section is to give the buyer assurances as to what they are buying.
- Indemnities: The indemnities section outlines any obligations one party would have to another to compensate or ‘indemnify’ the other party for certain losses, damages, or liabilities that may arise after the transaction is complete. In other words, indemnities are designed to protect both the buyer and seller from any unforeseen events or misrepresentations.
- Dispute Resolution: The dispute resolution clause provides both the buyer and seller a procedure and means to address any sort of dispute that may transpire as a result of the transaction. It is always smart to outline how disputes are addressed in any type of business transaction, so that both parties understand their options and means beforehand.
Who Should Use a Business Purchase Agreement?
Anyone buying or selling a business should use a business purchase agreement. This legally binding document outlines the terms of the transfer that protect both parties’ rights under local, state, and federal rules.
More Than a Business Purchase Agreement
Although the transaction is referred to as a business purchase, it may be more accurate to refer to it as a business asset and liability purchase . A transfer cannot be accomplished simply by stating that the seller is transferring all rights to the buyer.
Accurately Detail Asset Transfers
Sellers transfer the various assets, liabilities, and goodwill acquired by the company over time under a business purchase agreement. This assertion is true regardless of the business’s organizational structure. The business purchase agreement must include a detailed list of the transferred assets and liabilities.
Can I Write My Own Business Purchase Agreement?
Yes, you can technically write your own business purchase agreement since there are no laws against doing so. However, many of the available free and premium templates online were written for another business or general situation. Please consult with an attorney first since they can tailor an agreement for your exact business needs while avoiding all legal mistakes.
Why Hire a Lawyer for Business Purchase Agreements
The following are some advantages of hiring a legal counsel for business purchase agreements:
- Applies Legal Knowledge: Lawyers focusing on contract law are well-versed in the intricacies and needs of business purchase agreements. To guarantee that the contract conforms with all relevant rules and regulations, they can draft, evaluate, and negotiate it.
- Mitigates Risk: Attorneys can assist in identifying potential risks and liabilities related to the acquisition of a business. They can create provisions like indemnification clauses, representations and warranties, and dispute resolution systems that safeguard the interests and reduce risks.
- Supports Negotiations: Attorneys can bargain for favorable terms and circumstances on your behalf. They can assist in comprehending the significance of certain clauses and offer suggestions on whether to accept, reject, or amend particular words.
- Offers Customization: A lawyer can modify the contract to meet the needs and goals since every business acquisition differs. They can ensure that the agreement accurately reflects the individual's wishes and safeguards the interests.
- Resolves Disputes: In the event of a dispute between the parties, the early involvement of a lawyer can aid in facilitating resolution through formal legal processes or, if necessary, through negotiation.
Types of Business Purchase Agreements
The following are the different types of business purchase agreements:
- Asset Purchase Agreement: In an APA, the seller's corporate entity is left behind as the buyer takes over certain business assets and obligations, such as inventory, equipment, client lists, and contracts. This kind of contract lets the buyer select the assets and obligations they want to take on.
- Stock Purchase Agreement: A SPA entails the acquisition of all or the majority of the seller's ownership stakes in the company. Ownership of the entire business, including its contracts, liabilities, and assets, is transferred under this agreement.
- Merger Agreements: It combines two independent businesses to create a new organization. One company may acquire the other through an acquisition or a merger of equals. The merger's terms and circumstances, including how shares will be handled, the organization of management, and other crucial information, are laid out in the agreement.
- Membership Interest Purchase Agreement: It is utilized when an LLC (Limited Liability Company) is the target of the acquisition. Like a stock purchase agreement, the buyer can buy membership interests or ownership holdings in the LLC.
- Joint Venture Agreement: is utilized when two or more parties join forces to create a new legal organization for a particular goal or activity. Each party's contributions, obligations, and profit-sharing arrangements are described in this agreement.
- Partnership Buy-Sell Agreement: This contract is frequently used in partnerships to set up a structure for purchasing or selling ownership interests in the partnership in the case of certain triggering circumstances, such as the retirement, demise, or withdrawal of a partner.
- Franchise Agreement: When shopping for a franchise, the buyer and the franchisor enter right into a franchise settlement. The terms and circumstances of the franchise, such as costs, branding, and operational rules, are defined in this settlement.
See Business Purchase Agreement Pricing by State
- Alabama
- Alaska
- Arizona
- Arkansas
- California
- Colorado
- Connecticut
- Delaware
- District of Columbia
- Florida
- Georgia
- Hawaii
- Idaho
- Illinois
- Indiana
- Iowa
- Kansas
- Kentucky
- Louisiana
- Maine
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Montana
- Nebraska
- Nevada
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Oregon
- Pennsylvania
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Utah
- Vermont
- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
Business Purchase Agreement Sample
BUSINESS PURCHASE AND SALE AGREEMENT
THIS AGREEMENT (the “Agreement”) is made effective this [DATE] by and between [SELLER NAME] (the “Seller”) and [BUYER NAME] (the “Buyer"), referred to collectively as “the Parties”.
The Parties have reached an understanding with respect to the Buyer’s purchase of [BUSINESS NAME]. The Parties agree as follows:
- Seller. [SELLER NAME], an individual with the following address: [ADDRESS].
As of the date of this Agreement, Seller owns one hundred percent (100%) of the outstanding Membership Interests in [COMPANY NAME]. “Membership Interest” includes a full and complete ownership interest in the company, including all voting and management rights, and economic interests and rights, arising under [STATE] law.
- Buyer. [BUYER NAME], a [STATE] limited liability company with an address of: [ADDRESS].
Buyer desires to acquire the Membership Interest currently owned by Seller.
- Sale of Membership Interest. Seller hereby agrees to sell, and Buyer agrees to buy one hundred percent (100%) Membership Interest in [COMPANY]. This sale is intended to convey any and all ownership interests currently held by Seller.
- Representations -Seller. Seller represents that his/her Membership Interest is free and clear of all encumbrances or security interests of any kind, and that he has not sold, transferred, assigned, or otherwise compromised such Membership Interest in [COMPANY] in violation of [STATE] law. There are no judgments, charging orders, or liens against Seller and no litigation or proceedings pending against Seller or [COMPANY] which might impede the actions hereunder.
- Non-Compete. For a period of [NUMBER OF YEARS] years after the Closing, Seller shall not: (a) within any geographic region in which Buyer or Business operates, compete with (or become interested as an owner, partner, principal, agent, director, officer, or consultant, with any company or business that competes with) any product or service currently offered by Seller. Seller shall not, at any time, whether individually or on behalf of or through any third party, use any of the assets, or the trade secrets or other confidential information, 2 to solicit, divert, entice, persuade, or appropriate, either directly or indirectly, the business of any client, customer, partner or affiliate of Buyer, or to otherwise request or encourage any such party to breach any agreement or terminate any relationship between such party and Buyer.
- Restraint. In further consideration of Buyer, Seller will not at any time after Closing use a symbol, logo, domain name, trademark, or business name substantially identical or deceptively similar to the business names, trademarks or the domain names associated with the Entity.
- Transfer of Licenses and Certifications. Parties agree that any licenses and certifications owned by [COMPANY] shall remain the property of [COMPANY] and that any licenses and certifications owned personally by [SELLER] shall remain the property of [SELLER]. A description of the licenses and certifications owned by [COMPANY] is attached to this Agreement as Exhibit “A.” Parties agree to cooperate to execute any releases, assignments, amendments, or other documents necessary to effectuate transfer of said licenses and certificates. Furthermore, Seller agrees to indemnify Buyer against all claims made regarding rights and ownership of said licenses and certificates.
- Retention of Debts, Liabilities, and Payables. Parties agree that all debts, liabilities, and payables of [COMPANY] and [SELLER] acquired, established, or obligated prior to closing will remain the responsibility of [BUYER]. A description of the known debts, liabilities, and payables of [COMPANY] subject to this clause is attached to this Agreement as Exhibit “B.” This list is not intended to be exclusive. Parties agree to cooperate to execute any releases, assignments, amendments, or other documents necessary to effectuate retention of said debts, liabilities, and payables. Furthermore, Seller agrees to indemnify Buyer against all claims made regarding said debts, liabilities, and payables.
- Tangible Assets. Parties agree that all tangible assets owned by [COMPANY] or [SELLER] acquired prior to closing will remain the property of [BUYER]. A description of the tangible assets of [COMPANY] subject to this clause is attached to this Agreement as Exhibit “C.” Parties agree to cooperate to execute any releases, assignments, amendments, or other documents necessary to effectuate retention of tangible assets.
- Bank Accounts. Parties agree that all bank accounts owned by [COMPANY] prior to closing will remain under the control and ownership of [SELLER]. [COMPANY] will close said bank accounts within thirty (30) days of closing. A description of the bank accounts subject to this clause is attached to this Agreement as Exhibit “D.”
- Consideration. In consideration for the transfer of a one hundred percent (100%) Membership Interest in [COMPANY] under this Agreement, Buyer shall pay [PURCHASE PRICE] and No/100 US Dollars to [SELLER].
- Closing. The closing of the transactions contemplated by this Agreement (the "Closing") will take place at such time and place as Buyer and Seller may mutually determine.
- Amendments or Execution of Company Documents. Seller agrees to cooperate with Buyer to execute any releases, assignments, amendments, or other documents necessary to effectuate the events and intent contemplated by this Agreement.
- Investment Intent of Buyer. Buyer acknowledges that the interests transferred herein are not and will not be registered under the [LAW] Securities Act or the Federal Securities Act of 1933, and are being sold in reliance on the exemptions and exclusions set forth in those laws as a sale not involving a public offering. Further, Buyer is acquiring said interest for its own investment purposes and not with the intent of selling or otherwise transferring such interest. Buyer is able to, and hereby does, appreciate and accept the risk inherent in the purchase of this non-liquid investment interest.
- Entire Agreement. This Agreement and the Attached Employment Agreement constitute the entire agreement between Buyer and Seller with respect to the subject matter hereof and may be altered, amended, or repealed only by a duly executed written agreement.
- Severability. If any part of this Agreement shall be held to be unenforceable for any reason, the remainder of the Agreement shall continue in full force and effect.
- Online Mediation. If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the JAMS Endispute online mediation service https://www.jamsadr.com/endispute/, or similar online mediation service agreed to by the parties.
- Controlling Law. This Agreement shall be governed and enforced in all respects by the laws of the State of [STATE].
IN WITNESS WHEREOF, the parties have executed this Agreement this [DATE].
SELLER: ______________________
BUYER: ______________________
Final Thoughts on Business Purchase Agreements
A well-drafted business purchase agreement is essential for assuring a transparent and robust business acquisition technique, offering clarity, and lowering the chance of disputes among the parties. It is strongly advised to seek advice from a legal professional while drafting or revising such agreements to ensure they comply with the particular terms and legal framework of the applicable jurisdiction.
If you are looking to get free pricing proposals from vetted lawyers that are 60% less than typical law firms, you can click here to get started. By comparing multiple proposals for free, you can save time and stress of finding a quality lawyer for your business needs.
Need help with a Business Purchase Agreement?
Meet some of our Business Purchase Agreement Lawyers
Scott S.
I have over 25 years' experience representing individual and company clients, large and small, in transactions such as mergers and acquisitions, private offerings of securities, commercial loans and commercial endeavors (supply contracts, manufacturing agreements, joint ventures, intellectual property licenses, etc.). My particular specialty is in complex and novel drafting.
Michael O.
A corporate and commercial attorney with experience in transactional legal services including corporate and finance transactions, mergers and acquisitions, real estate, commercial contracts, bankruptcy, restructuring, international business transactions and general counsel services. Additional background skills and experience include investment banking, financial analysis, and commercial litigation. Sectors covered include technology, media, franchises, and business services providers, from start-ups to medium and large enterprises.
Rene H.
I am an attorney licensed in both California and Mexico. I offer a unique blend of 14 years of legal expertise that bridges the gap between diverse legal landscapes. My background is enriched by significant roles as in-house counsel for global powerhouses such as Anheuser-Busch, Campari Group, and Grupo Lala, alongside contributions to Tier 1 law firms. I specialize in navigating the complexities of two pivotal areas: AI/Tech Innovation: With a profound grasp of both cutting-edge transformer models and foundational machine learning technologies, I am your go-to advisor for integrating these advancements into your business. Whether it's B2B or B2C applications, I ensure that your company harnesses the power of AI in a manner that's not only enterprise-friendly but also fully compliant with regulatory standards. Cross-Border Excellence: My expertise extends beyond borders, with over a decade of experience facilitating cross-border operations for companies in more than 20 countries. I am particularly adept at enhancing US-Mexico operations, ensuring seamless and efficient business transactions across these territories.
September 11, 2023
Amber M.
Oklahoma Licensed Attorney
September 12, 2023
Sarah P.
Sarah graduated magna cum laude from the University of Illinois College of Law in 2013. Prior to opening her own practice, Sarah worked in a large law firm defending corporate clients. She then transitioned to a smaller firm where her longing to serve clients in the surrounding community became evident. With her prior experience, Sarah opened her own firm in 2016 and has since served Lemont and the surrounding areas.
September 13, 2023
Joseph K.
I am a business, transactions, and estate attorney working out of central Texas.
September 15, 2023
Sarah F.
Sarah brings together her accounting and legal background to help solve client problems. Sarah couples her broad, general commercial legal background with our client’s international and business problems to arrive at elegant solutions that work for their business.
Find the best lawyer for your project
Browse Lawyers NowBusiness Contracts
Business Purchase Agreement
Georgia
Are non-competes part of a business purchase agreement?
I am in the process of purchasing a business and need to know if a non-compete agreement is part of the purchase agreement. I understand that the non-compete agreement will help to protect my business from competition but I am not sure if this is included in the purchase agreement. I also need to know the implications of including a non-compete agreement in the purchase agreement.
Bobby H.
Many purchase agreements do include non-competes, which are typically geographically limited and limited in terms of duration. The implication for the seller is straight forward. As a practial matter, the buyer benefits from a non-compete because it limits competion from the seller for business within the community in which the buyer will operate following the purchase of the business, or competition from the seller over the same potential customers, which aids profitability.
Acquisitions
Business Purchase Agreement
California
What's an earn-out in a business purchase agreement?
I am looking to purchase a business and the seller has proposed an earn-out as part of the purchase agreement. I am unfamiliar with this type of agreement and need advice on how it works and what I need to consider before agreeing to it. I would like to understand what an earn-out entails and the potential risks and rewards associated with it.
James H.
For informational purposes, NOT legal advice: In some service businesses, where there is not hard property asset value but the company is making money, an agreement called "earnout" allows the seller to continue working as part of the compensation. For example, a consulting company may have ongoing business that is dependent on the seller being involved, due to familiarity and personal loyalty. These agreements differ from seller financing in that the seller's employment is subject to continued business volume, therefore the buyer has some assurance that the seller (and their friends, co-workers, relatives,etc.) do NOT try to divert the existing customer revenue stream to a different business with similar services. Yes, some sellers cleverly attempt to sell their business and then set up a competitor in their kids, spouse or relative name to recapture the revenue and tiptoe over the non-compete seller clause In these situations the buyer may offer a Earnout to protect their interest and insure the revenue keeps coming in while the new owners learn the detalls and customer base. Other situations where "Earnout" may be preferable include business sales where the subject business is a subcontractor or heavily dependent on one or a small few number of clients, which makes the business revenue stream highly subject to rapid change. Buyers should be careful not to pay for a company AND then also do a "earnout" since that would be paying twice.
Business Contracts
Business Purchase Agreement
North Carolina
Is due diligence part of a business purchase agreement?
I am looking to purchase a business and am currently in the process of negotiating a business purchase agreement with the seller. As part of this agreement, I want to ensure that due diligence is included, as it is an important factor in ensuring that the business meets my expectations. I am interested in understanding what role due diligence plays in a business purchase agreement and what considerations I should make to ensure that it is included.
N'kia N.
Due diligence is an important aspect of a business purchase agreement. Like due diligence in real estate transactions, in a business purchase, due diligence is the buyer's opportunity to verify material facts and circumstances. This is why, in many cases, the buyer will condition the offer to purchase upon due diligence. A prospective buyer should consider consulting with a knowledgeable attorney before executing a business purchase agreement.
Business Contracts
Business Purchase Agreement
California
Can a business purchase agreement be verbal?
I am in the process of purchasing a business and am currently in negotiations with the seller. I am trying to understand the legal requirements for a business purchase agreement. Can a business purchase agreement be verbal or does it need to be in writing? I'm looking for clarification on this as I want to ensure that all parties involved are legally protected.
Brian W.
Business purchase agreements need to be in writing. It will protect you and each party. Let me know if you need assistance in drafting the agreement.
Business Contracts
Business Purchase Agreement
North Carolina
How to terminate a business purchase agreement?
I am in the process of purchasing a business, and I am currently reviewing the purchase agreement. I have noticed that the agreement does not specify how to terminate it and I am looking for guidance on how to properly terminate the agreement if I decide to do so. I am also interested in learning what the potential legal consequences of such a termination would be.
N'kia N.
A North Carolina business purchase agreement typically includes due diligence. During due diligence, the buyer has the opportunity to explore the deal and investigate the business to be purchased. The buyer is usually allowed to terminate a business purchase agreement during the due diligence period simply by providing proper notice to the seller. Upon terminating a business purchase agreement during due diligence, the buyer is usually not entitled to a refund of a due diligence fee but might be entitled to a refund of a deposit. There are also several other termination options that could be included in a business purchase agreement. To avoid conflict and confusion, ideally, a contract should clearly articulate how it can be terminated. If you need assistance with a North Carolina business purchase agreement, you might consider consulting with a knowledgeable North Carolina corporate attorney. Good luck!
Need help with a Business Purchase Agreement?
Corporate lawyers by top cities
- Austin Corporate Lawyers
- Boston Corporate Lawyers
- Chicago Corporate Lawyers
- Dallas Corporate Lawyers
- Denver Corporate Lawyers
- Houston Corporate Lawyers
- Los Angeles Corporate Lawyers
- New York Corporate Lawyers
- Phoenix Corporate Lawyers
- San Diego Corporate Lawyers
- Tampa Corporate Lawyers
Business Purchase Agreement lawyers by city
- Austin Business Purchase Agreement Lawyers
- Boston Business Purchase Agreement Lawyers
- Chicago Business Purchase Agreement Lawyers
- Dallas Business Purchase Agreement Lawyers
- Denver Business Purchase Agreement Lawyers
- Houston Business Purchase Agreement Lawyers
- Los Angeles Business Purchase Agreement Lawyers
- New York Business Purchase Agreement Lawyers
- Phoenix Business Purchase Agreement Lawyers
- San Diego Business Purchase Agreement Lawyers
- Tampa Business Purchase Agreement Lawyers
ContractsCounsel User
Mattress by Appointment Cleveland
Location: Ohio
Turnaround: A week
Service: Drafting
Doc Type: Business Purchase Agreement
Number of Bids: 5
Bid Range: $800 - $3,500
ContractsCounsel User
Business purchase agreement
Location: Texas
Turnaround: A week
Service: Drafting
Doc Type: Business Purchase Agreement
Number of Bids: 4
Bid Range: $500 - $1,500
User Feedback:
related contracts
- Asset Acquisition Agreement
- Asset Acquisition Contract
- Asset Purchase
- Asset Purchase Agreement
- Asset Purchase Due Diligence Checklist
- Asset Sale
- Business Acquisition Agreement
- Business Acquisition Contract
- Business Acquisition Due Diligence Checklist
- Business Purchase and Sale Agreement
other helpful articles
- How much does it cost to draft a contract?
- Do Contract Lawyers Use Templates?
- How do Contract Lawyers charge?
- Business Contract Lawyers: How Can They Help?
- What to look for when hiring a lawyer