A purchase agreement is the definitive contract for buying or selling a business or major asset. It replaces any prior LOI or MOU and contains all binding terms of the transaction.
Two types of purchase agreements
- Asset purchase — the buyer acquires specific assets (equipment, inventory, IP, goodwill) and assumes specific liabilities. The seller retains the legal entity.
- Stock purchase — the buyer acquires the entity itself, including all assets, liabilities, and history. The seller walks away.
The structure affects taxes, liability, and ongoing obligations. Talk to a CPA before choosing.
Key terms
- Purchase price — the total consideration, including any earnout, seller note, or escrow holdback.
- Representations and warranties — statements of fact about the business (no hidden debts, valid contracts, owned IP). If these are false, the buyer has a claim for damages.
- Covenants — promises about what each party will (or won't do) between signing and closing.
- Conditions to closing — what must happen before the deal is final (due diligence completion, financing, regulatory approval).
- Indemnification — who pays for pre-closing liabilities and how claims are handled post-closing.
Due diligence
The buyer should verify before signing:
- Financial statements and tax returns (3 years minimum)
- Material contracts and lease assignments
- IP ownership and pending litigation
- Employee agreements and benefits
- Environmental and regulatory compliance
Due diligence is where deals die. Budget time and money for it — a thorough review can save you from inheriting someone else's problems.
Closing and post-closing
- Closing — transfer of assets/stock, payment, and delivery of closing documents.
- Post-closing adjustments — working capital true-up, earnout measurements, escrow releases.
- Survival periods — how long representations and warranties survive (typically 12–24 months).
Make it legal
- Authorized representatives of both parties sign.
- Each party keeps a signed original.
- Attach all exhibits, schedules, and ancillary agreements.
A state-specific purchase agreement drafted to your transaction takes about ten minutes.