Buying or Selling a Business: Why the Agreement Matters

Business purchase agreements are what buying or selling a business hinges on, as it does far more than outline the sale price and payment terms. The agreement assigns risk, defines obligations, and can determine whether the deal ultimately creates value or long-term liability.

A properly drafted business purchase agreement reflects the parties’ intentions and the practical reality that the party with more leverage often controls the negotiation. Understanding how warranties function, how to negotiate key provisions, and how legal representation helps protect your interests is critical whether you are on the buy-side or the sell-side.

Warranties and Representations: What They Are and Why They Matter

At the heart of any business purchase agreement are the representations and warranties — legally binding statements about the condition of the business being sold. These clauses cover everything from financial records and outstanding liabilities to intellectual property rights, contracts, employee matters, and pending litigation.

For example, a seller might say that:

• Financial statements are correct and prepared in accordance with accepted accounting principles
  
• No undisclosed debts or liabilities exist to the Seller’s knowledge
  
• All material contracts are in good standing and assignable
  
• The business owns (or has valid rights to use) all intellectual property
  
• No ongoing lawsuits or government investigations exist to the Seller’s knowledge
  

For a buyer, these warranties offer critical protection. If a representation later turns out to be false — and the buyer suffers a loss as a result — the agreement may allow them to seek indemnification – money for the loss – or even unwind the deal in extreme cases.

For a seller, agreeing to overly broad or open-ended warranties can expose them to years of post-closing risk, particularly if the agreement lacks proper limits on claims. Negotiating fair warranties and narrowing their scope is a key focus for seller-side counsel.

The “Golden Rule” in M&A Negotiations

In every deal, one truth remains: The party with the money makes the rules. This truism is often referred to as the “golden rule” — and that rule plays out in nearly every business purchase negotiation.

Buyers holding the capital usually have more leverage to demand extensive warranties, indemnification rights, and post-closing protections. The Buyer may insist on holding back part of the purchase price in escrow to cover future claims, or on including termination rights if certain conditions are not met.

Sellers may seek a faster closing, fewer representations, and limitations on liability (such as caps on indemnification, survival periods, and exclusions for minor breaches). But unless the deal is competitive or the business is in high demand, sellers are often negotiating from a weaker position.

This imbalance does not mean sellers have no say — but this imbalance underscores the importance of skilled legal representation to help shift the balance or at least mitigate the impact of unfavorable terms.

How to Negotiate the Business Purchase Agreement

Effective negotiation of a business purchase agreement starts with understanding your goals and risks. Whether you’re a buyer or seller, you’ll want to focus on key provisions, including:

• Purchase Price and Payment Terms: Upfront payments, earn-outs, holdbacks, and seller financing structures must be carefully documented and understood.
  
• Reps and Warranties: What are you being asked to assert — and for how long? Are there materiality thresholds or knowledge qualifiers?
  
• Indemnification: Who pays if a warranty is breached? What’s the cap on liability? How are claims handled?
  
• Non-compete and Non-solicit Clauses: Are restrictions on future activity reasonable and enforceable?
  
• Conditions to Closing: What must happen before the deal closes? Are there outs for either party?
  

Too often, parties rush into finalizing the deal and gloss over these details. But the purchase agreement governs what happens after the money changes hands — and that’s where most disputes arise.

Why Legal Representation is Non-Negotiable

Business purchase agreements are not DIY documents. Each deal is unique, and the risks — tax, regulatory, contractual, and reputational — are significant. Even for smaller deals, there are complex issues related to asset vs. stock sales, due diligence, financing contingencies, employee transitions, and assignment of contracts that must be handled with precision.

Having an experienced attorney ensures:

• You understand what you are agreeing to — and what you’re not
  
• The agreement reflects your specific business, industry, and risk profile
  
• Legal landmines are flagged before they become post-closing problems
  
• You’re protected against hidden liabilities and unfair deal terms
  
• Negotiations are approached with strategy, not guesswork
  

Whether you’re buying your first business, selling a family company, or handling a mid-market transaction, legal counsel plays a crucial role in structuring, negotiating, and protecting the deal.

Contact an Experienced Business Transaction Attorney

Business purchase agreements aren’t just about the sale — they’re about risk allocation, future obligations, and the foundation for what comes next. Whether you’re preparing to sell a company or acquire one, the terms you negotiate now will have lasting consequences.

At Brinen & Associates, we help buyers and sellers navigate complex business transactions with confidence. From drafting agreements and negotiating warranties to identifying red flags and closing the deal, our attorneys provide seasoned, strategic legal guidance.

Call us at (212) 330-8151 or send us a message to learn how we can protect your interests in your next business deal.