Purchase Agreement

A purchase agreement (also called an acquisition agreement, asset purchase agreement, or share purchase agreement depending on the deal structure) is the binding legal contract that documents the terms of a business sale. It supersedes the letter of intent and governs the rights and obligations of buyer and seller from signing through closing and beyond.

A purchase agreement typically includes: the purchase price and payment terms, the assets or shares being transferred, representations and warranties made by both parties, indemnification provisions and their limits, conditions precedent to closing, employee and contract transition provisions, post-closing obligations (including non-compete terms), and dispute resolution mechanisms.

Asset purchase agreements (APAs) and share purchase agreements (SPAs) differ significantly in structure and content. APAs must specifically enumerate each asset transferred and each liability assumed. SPAs transfer the entire corporation, requiring more extensive representations about the company's historical liabilities and corporate records.

See also: Letter of Intent, Asset Sale, Share Sale, Representations and Warranties, Indemnification, Closing.