Selling your business is a significant milestone, and the purchase agreement is the document that makes it official. It's comprehensive, typically 50 to 100 pages, and you should have an experienced advisor in your corner to guide you through every section and negotiate on your behalf.

That said, understanding what you're signing is always worthwhile. Knowing the key sections and what they mean helps you have more informed conversations with your advisors and gives you confidence as you move toward closing.

Here's a plain-English breakdown of what a purchase agreement covers and what sellers should know.

What is a purchase agreement?

A purchase agreement (sometimes called a business purchase agreement or a purchase and sale agreement) is the principal legal document that officially transfers ownership of your business to a buyer. It's the binding contract that turns months of conversations and negotiations into a closed deal.

It does six critical things:

1. Sets the roadmap to closing: all conditions that must be met before the transaction is complete

2. Defines the purchase price: including how and when you'll be paid, and whether any portion is contingent or held in escrow

3. Specifies exactly what is (and isn't) being sold: down to individual assets or equity interests

4. Serves a diligence function: formalizing what both parties have represented to each other

5. Creates a basis for post-closing claims: if the buyer discovers something that contradicts your representations, this is the document they'll point to

6. Outlines post-closing obligations: transition support, non-competes, and other ongoing responsibilities

Depending on how your transaction is structured, it may go by different names:

• Asset Purchase Agreement: the buyer is purchasing specific assets of the business

• Stock Purchase Agreement: the buyer is purchasing your ownership stake (equity) in the company

Regardless of what it's called, the purchase agreement serves the same core purpose: it defines the terms of the transaction, protects both parties, and provides a legal framework if anything goes wrong after closing.

Key sections of a purchase agreement

Parties

This establishes who's involved, including the full legal names and contact information of both buyer and seller. 

Description of the Business

A thorough overview of the business: its location, purpose, products and services, management structure, financial summary, and customer base. This section also includes your confirmation that you have the legal authority to sell the business.

Sale Terms

This defines what's actually changing hands. Not every asset automatically transfers; this section explicitly lists what's included and what's excluded.

Commonly included: equipment, fixtures, inventory, accounts receivable, customer lists, goodwill, intellectual property.

Commonly excluded: cash on hand, personal vehicles, real estate (unless otherwise negotiated).

Pay close attention here. Ambiguity in this section is one of the most common sources of post-closing disputes.

Covenants

This section outlines obligations, primarily the seller',— both before and after closing. It typically covers:

• Tax liabilities and loan payoffs

• Third-party fees and obligations

• Transfer of employee benefit plans and salaries

• Non-compete agreements: restrictions on starting or joining a competing business

• Non-solicitation agreements: restrictions on poaching employees or customers

• Confidentiality provisions

• Indemnification clause:— who is responsible if a claim arises after closing

For sellers, the non-compete and indemnification terms are often the most consequential parts of this section. Know what you're agreeing to before you sign.

Transition

This section defines what happens after the keys change hands. Specifically: what role (if any) does the seller play post-close, who is responsible for training new staff, and how will customers be notified about the change in ownership?

Closing Mechanics

The logistics: when and where closing happens, what documents transfer at closing, and what funds are exchanged. Straightforward, but worth reviewing to confirm everything matches your expectations.

Brokers

If a broker facilitated the transaction, this section names them and clarifies who is responsible for paying their fee.

Appendices

Supporting documents attached to the agreement: the letter of intent, financial statements, valuations, and any vendor or customer agreements that are part of the sale.

Simultaneous close vs. Sign and close later

Most lower middle market transactions use what's called a simultaneous closing: you sign the purchase agreement and close the deal on the same day. This is the cleaner, more common path.

In some cases, however, the agreement is signed first and the deal closes at a later date. This typically happens when third-party approvals are needed, such as a major customer's consent, a government license transfer, or a landlord's sign-off on a lease assignment.

One important note for sellers: There is no deal until the purchase agreement is both signed and closed. It's tempting to start acting like the deal is done once things are moving smoothly, but doing so can put you in a difficult position if something falls through at the last minute.

What sellers should keep in mind

A few things worth emphasizing as you approach this stage:

You need an experienced advisor. Purchase agreements are long, technical, and full of terms with real financial consequences. This is not the place to cut costs.

Read it anyway. Your team will negotiate on your behalf, but you should understand every section. Ask questions. Ask for plain-English explanations of anything that's unclear.

Indemnification terms matter. Understand how long you're on the hook after closing, for what types of claims, and up to what dollar amount.

Final thoughts

A purchase agreement is the culmination of everything you've worked toward in selling your business. Understanding its structure and key provisions puts you in a stronger position to negotiate, to ask the right questions, and ultimately to close with confidence.

With Baton, you have an advisor in your corner throughout this process. Lean on them. And don't hesitate to slow down and ask questions, no matter how far along in the process you are.