Business Purchase Agreement Template

A business purchase agreement is a legal contract for officially selling any business to another person. It clarifies ownership transfer requirements so the seller can properly relinquish their rights to the business.

This document is also useful for selling some of a company’s assets or shares instead of the entire business entity. In these cases, the document’s author must specify the assets or shares they want to sell.

Table of Contents

• What Is a Business Purchase Agreement?
• When to Use a Business Purchase Agreement
• Preliminary Steps Before Signing a Business Purchase Agreement
• Legal Terminology
• Restrictive Clauses
• How to Buy an Existing Business
• How to Write a Business Purchase Agreement
• Business Purchase Agreement Sample
• Frequently Asked Questions

What Is a Business Purchase Agreement?

A business purchase agreement details the provisions for the sale of a company. As a legally enforceable contract, it ensures that both the seller and buyer follow through with their promises and creates an opportunity to confirm the transaction’s terms and conditions.

This business agreement will identify the following essential elements:

• Business: The company, assets, and/or stock the seller transfers to the buyer.
• Closing Date: When the purchaser will pay and when the seller will deliver the assets.
• Parties: The seller’s and purchaser’s identifying details.
• Purchase Price: The payment for the transfer, including any deposits or financing.

When to Use a Business Purchase Agreement

This agreement allows both parties to prevent the following misunderstandings:

• The seller doesn’t have the power or authority to sell the business.
• The business lacks the licenses, permits, or authorizations to operate.
• A certified public accountant hasn’t examined financial statements.
• Accounts receivable may be subject to undisclosed set-offs or counterclaims.
• Some liabilities or obligations have not already been paid or discharged.
• Dividends have been unexpectedly set aside or paid.
• Salaries and benefits to officers or employees have suddenly increased.
• The existing condition of the company does not match the purchaser’s understanding.

Consult your accountant, attorney, and broker (if any) for the tax, legal, and financial implications of buying or selling a business in your state.

Preliminary Steps Before Signing a Business Purchase Agreement

Here are some steps you should take to safeguard your arrangement before signing a business purchase agreement:

Step 1 – Request a Letter of Intent

Request a letter of intent from the other party. This document confirms they’re serious about the transaction. When you know their interest, you can focus on your relationship with them instead of attempting to pursue other buyers.

Step 2 – Ask for a Deposit

Obtaining a deposit from the buyer can further ensure their commitment. Establish the parameters for returning some or all of the deposit if the buyer decides not to proceed with the final purchase.

Step 3 – Discuss Financing Options

Discuss how you’d like to receive payment for the business. Learn if the buyer will acquire capital funding and from what source so you can determine their ability to follow through with their financial obligations.

Step 4 – Establish Confidentiality

While a business sale agreement will have a confidentiality clause, you should establish a confidentiality agreement if the purchase doesn’t occur. This way, the buyer won’t share sensitive information with others as you try to conduct a sale with other parties.

Legal Terminology

Here’s some legal terminology you may encounter with business sales agreements:

• Assumed Liabilities: Assumed liabilities are liabilities the purchasing party assumes under the terms of a business contract. Examples of liabilities from purchasing a business include accounts payable, environmental liabilities, employee-related expenses, and contractual obligations.
• Sale: The sale specifies what the seller is selling, whether it’s the entire business, specific assets, or stock in the company.
• Covenants: Covenants are commitments or promises either party makes regarding the transaction.
• Transition: The transition refers to how the seller will hand over responsibility and control of the company to the buyer.
• Buyer’s and Seller’s Representations and Warranties: Representations and warranties are facts and assertions about what the seller is selling. The seller usually makes several representations about the business, which the buyer relies on being factual.[/lt_faq_answer]
• Condition Precedent: A condition precedent is a certain event that must occur on the seller’s or buyer’s end for the closing transaction to occur.

Restrictive Clauses

Here are some restrictive clauses you can dictate in a business purchase agreement:

• Non-Competition: A non-compete clause prevents the seller from participating in similar businesses in or near the city of the business they’re selling for a specific period.
• Non-Solicitation: A non-solicitation clause prohibits the seller from hiring employees who will be under the buyer’s employment.
• Confidentiality: A confidentiality clause protects the buyer and seller, prohibiting each party from revealing confidential information for a specified period.

How to Buy an Existing Business

Follow these steps to purchase an existing business:

Step 1 – Find a Business to Purchase

Find a business for sale that’s worth purchasing. Evaluate its profitability by ensuring it has positive cash flow (or the potential for positive cash flow), a diverse customer base, and a plan for long-term expansion.

Ensure the business is within an industry you’re familiar with. You can also speak with the leaders to better understand if you’d enjoy leading the company.

Some resources you can use to locate a business for sale include:

• Franchisors
• Local business brokers
• Online broker sites like E-commerce Brokers
• Local certified public accountants or attorneys

Step 2 – Formally Value the Business

Perform a formal valuation to better understand the business’s worth. You can complete this step by evaluating its earnings before interest, taxes, depreciation, and amortization (EBITDA), net income, and revenue. You may consider hiring a professional for a more accurate assessment.

Step 3 – Negotiate a Purchase Price

Submit a written offer to the seller. Allow them to come back with a counteroffer. From there, you can negotiate the purchase price to settle on one you’re both content with.

As you conduct due diligence, you may present the seller with reasons for a lower purchase price.

Step 4 – Deliver a Letter of Intent

Once you’ve negotiated the purchase price, submit a letter of intent to express your interest. While this agreement isn’t legally binding, it can help you show your commitment. As a result, the seller may focus on you as the sole buyer.

Step 5 – Conduct Due Diligence

A buyer is responsible for conducting due diligence to understand the business’s current state and what they’ll gain if they decide to purchase. Consider reviewing the following documents of the company you want to purchase:

• Legal records (in case of pending litigation)
• Advertising and marketing materials
• Manager and employee details
• Commercial lease or other property-related documents
• Data on current business debt
• Existing contracts
• Customer lists
• Current-year balance sheets and income statements
• Tax returns
• Incorporation documents

Step 6 – Secure Financing

You can purchase a business with a combination of equity and debt, meaning you supply some of the purchase price through your own assets and cover the rest with a loan.

You can obtain a loan like a traditional bank loan or an SBA loan through an outside lender. Alternatively, you can ask about seller financing, where the business owner provides the loan.

Step 7 – Close the Transaction

If you didn’t discover anything alarming during your due diligence and you secured financing, you can close the transaction. Work with the seller to create a final business purchase agreement and sign the document. At this point, you can follow the document’s guidelines for receiving company ownership.

How to Write a Business Purchase Agreement

Here’s a step-by-step on creating a business purchase agreement with a free business purchase agreement template.

Step 1 – Record the Parties’ and Business’s Information

A business purchase agreement should detail the buyers’ and sellers’ names.

It must also include information about the business the seller is selling, such as its name, location, description, and entity type.

Step 2 – Include Business Assets

The business purchase agreement will identify the specific assets transferred in the sale.

These assets include physical assets such as vehicles, real estate, or furnishings and financial assets such as accounts receivable. It may also include intangible assets such as the business name, trademarks, patents, goodwill, and customer lists.

You will also want to include excluded assets you do not wish to include in the sale.

Step 3 – Detail Business Liabilities

A business purchase agreement should cover whether the buyer assumes any liability by purchasing the business. Liabilities may include accounts payable, environmental liabilities, employee-related expenses, lawsuits, and contractual obligations.

If you need to, you can also detail excluded liabilities, which are explicitly not included in the sale.

Step 4 – Write the Purchase Price

One of the critical elements in a business purchase agreement is the purchase price. Here, you should detail how much the buyer will pay to the seller for the purchase of the business and if the buyer will pay a deposit.

You should also include the allocation of the purchase price among the assets in the agreement. The allocation affects the deal’s financial structure, tax consequences, and financial reporting.

Another element of the purchase price is purchase price adjustments. This section covers whether the parties will adjust the purchase price at closing to account for any differences in the business between the time of signing the agreement and the closing date.

It also covers any changes to the company’s value the buyer assumes, such as specific net working capital or fair market value.

Step 5 – Highlight the Terms

The terms of a business purchase agreement take up the bulk of the contract and consist of important information like:

• Buyer’s representations and warranties
• Seller’s representations and warranties
• Conditions precedent
• A non-compete clause
• Dispute resolution
• Governing law
• Any additional provisions

Step 6 – Obtain Signatures

Obtain signatures from the buyer and seller or their representatives to make the agreement legally binding. Depending on your jurisdiction, a notary public may need to witness their signatures.

Business Purchase Agreement Sample

Download a business purchase agreement template as a PDF or Word file below:

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Frequently Asked Questions