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Business Acquisition Agreement Laws

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What Is a Business Acquisition Agreement?

Although business acquisition agreements differ in details, they all share the same basic structure. The typical agreement contains the following:

  • Terms of the transaction - identification of the assets or stock to be transferred, consideration to be paid, and mechanics of the transaction
  • Provisions of the terms - specific conditions placed on the terms of the transaction, such as employment contracts
  • Stock provisions - if stock or other securities are used as payment, terms relating to registration
  • Representations and warranties of the seller - this includes assurances of good title, profitability, etc.
  • Representations and warranties of the purchaser - this includes assurances of prompt payment
  • Covenants of the seller - in other words, promises to do or not to do something before closing
  • Conditions to the purchaser's obligation to close - events that must happen for the purchaser to be bound to buy from the seller
  • Conditions to the seller's obligation to close - events that must happen for the seller to be bound to sell to the purchaser
  • Closing and termination provisions - these are mostly last minute assurances by seller to comfort the purchaser's fears
  • Indemnification clauses - amount of money that can be claimed if something is wrong with the deal
  • Other clauses - these include finders' fees, expenses, and common trade agreements

Assurance Proved by the Business Seller

The seller in an acquisition agreement must provide much more information and assurance to the purchaser because in most cases the seller simply desires money in exchange for the business to be sold, and cash does not need to be proven to be good. The purchaser only must provide comparable assurances if the seller is retaining stock in their former business, because the seller will not be able to sell their stock for a significant amount of time.

Can I Use an Agreement from a Past Acquisition?

Using older acquisition agreements as a model is a very common mistake that leads to many problems for purchasers. Every transaction is different and using a form from past acquisitions informs the other party that you find this deal unworthy of your respect or time and that you do not care about the details of the current deal. Even worse, using a past form tells the other party of the concessions you were willing to make in your last deal, which may encourage the other party to renegotiate and drive a harder bargain on terms you believed had been resolved.

If you greatly wish to save time, use a preliminary form that does not contain very many detailed terms. It can be useful as a starting point for your current deal but does not give very much detailed information about your past deals.

Do I Need a Business Attorney?

Business acquisition agreements have a basic structure, but many parts may be perplexing, particularly if the other party is very experienced and savvy. Don't let yourself be fooled into believing any promises about the acquisition agreement without first having it reviewed by a good attorney who can explain to you what each part means. A business attorney can also draft a new business acquisition agreement that meets the needs of your situation. 

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Photo of page author Ken LaMance

, LegalMatch Law Library Managing Editor and Attorney at Law

Last Modified: 05-06-2018 05:46 PM PDT

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