The purchase agreement is the document that actually sells the business. Everything before it was preparation or intention; this is the one that binds. It is long, and for a seller the risk is not distributed evenly across it: five sections carry nearly all of what can still go wrong after signing.
What is being sold, and how the price is fixed
The purchase agreement for business use opens by defining exactly what transfers and what does not, which matters more than owners expect because excluded assets and retained liabilities are easy to assume and expensive to assume wrongly. The price section then defines not just the number but the adjustments: working capital true-ups, debt-free cash-free mechanics and inventory counts can move the final figure meaningfully after closing, and a seller who has not modelled those adjustments does not yet know what they are being paid.
Warranties, disclosure and indemnities
The warranties are the statements you promise are true; the disclosure schedule is where you qualify them; the indemnities are specific promises to cover named risks in full, usually things found in diligence. Indemnities are more dangerous to a seller than warranties because they are often uncapped and do not require the buyer to prove loss in the same way. Any indemnity being asked for should be understood precisely, because it is the buyer saying they have found something and want you to carry it.
Conditions, covenants and what happens between signing and closing
Where signing and closing are not simultaneous, the purchase of business agreement governs the gap: what conditions must be satisfied, what you may and may not do with the business in the meantime, and who bears the risk if something changes. Restrictive covenants also sit here, meaning what you agree not to do afterwards, for how long and over what area. Those are worth negotiating carefully; they are the terms that will still be constraining you long after the money has been spent.
Asset agreement or entity purchase agreement
An entity purchase agreement transfers the company itself, with everything in it including liabilities the buyer may not have found. An asset agreement transfers named assets, leaving the entity and its history with the seller. Buyers usually prefer assets; sellers usually prefer entity. The choice changes which document you are negotiating, which consents you need and how the closing works, and it should be settled at the letter of intent rather than argued about later.
Questions people ask about business purchase agreement
What does the purchase agreement fix beyond the price?
The adjustments: working capital true-ups, debt-free cash-free mechanics and inventory counts can move the final figure after closing, so the headline number is not what you are paid.
How do indemnities differ from warranties?
Indemnities are specific promises to cover named risks, often uncapped and not requiring the buyer to prove loss the same way. An indemnity request usually means diligence found something.
What is an entity purchase agreement?
One that transfers the company itself, with its liabilities and history, rather than named assets. Buyers usually prefer asset deals and sellers entity deals, and it should be settled at the LOI.