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Understanding The Purchase Contract

Posted by sb_admin on August 25, 2010
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So, you’ve agreed to commit to the undertaking of purchasing a business, but you still need to make it official – you need to sign the purchase. It is a legal agreement that makes clear all the details of the sale.


The purchase agreement usually includes:

  • Terms and conditions of the sale
  • Purchase price and method of payment
  • Representations and warranties of the buyer and the seller
  • All the details of the business to be purchased, for instance, a list of inventory, assets, contracts, as well as equipment.
  • Actions the seller has agreed to take prior to the sale (like paying off existing loans or securing the resignation of¬†employees who will not be working for the new owner)
  • A list of all existing creditors who are to be paid off with the proceeds of the purchase
  • An agreement to clear up any disputes that might have came about from the sale, in a specific court of law or with a specific arbitration company
  • Additional relevant documents known as exhibits and amendments
  • The amount of commission that is owed to a business broker, and the person responsible for paying that broker’s commission.

The exhibits might include the following items:

  • The bill of sale
  • financial statements
  • leases
  • tax returns
  • accounts receivable and payable
  • bylaws and minutes
  • Property deeds
  • An agreement that the seller will act as a consultant to the company, stay with the company as an employee, or agree not to compete with the business or operate in a particular territory for a
  • certain period of time
  • An escrow agreement showing the responsibilities of the escrow agent, if the purchase money is being held in escrow for a specific time period.
  • A promissory note, if the buyer is paying the purchase price in more than one installment or paying the entire purchase price at a later date


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