Selling a business
Understanding M&A Purchasing Agreements
What each section of an M&A purchase agreement does, which clauses carry the most risk for a seller, and who should negotiate them.
By Michael D. Rubin, CEO & Founder · Updated September 2026 · 813 words
The purchase agreement is the contract that turns an accepted offer into a sale: it fixes how the final price is calculated, what you promise about the company, what happens if those promises prove wrong, and what must be true before closing can happen. The letter of intent (LOI) outlines the deal. The purchase agreement decides what you actually keep.
Every agreement is different, but most follow a similar structure. Knowing what each part does helps you see where the real negotiation lies, and which points to leave to your attorney and which to decide yourself.
The main sections, and what each one does
The table summarizes the sections found in most agreements for a private company sale, with the point in each that deserves a seller's attention.
| Section | What it does | What a seller watches |
|---|---|---|
| Definitions | Fixes the meaning of terms used throughout | How cash, debt, working capital and losses are defined, since those words move money |
| Purchase price and adjustments | Sets the price and how it changes at closing | The working capital target and how the final figure is calculated |
| Representations and warranties | Your statements of fact about the company | Knowledge and materiality limits, so honest statements are not treated as breaches |
| Disclosure schedules | List the exceptions to those statements | Completeness, because anything disclosed here is generally not a breach later |
| Indemnification | Decides who pays if a statement proves wrong | Caps, deductibles, time limits and whether it is the buyer's only remedy |
| Covenants | Promises about conduct before and after closing | Limits on running the company before closing; the scope of any non-compete after |
| Closing conditions and termination | What must happen before either side is bound to close | Financing contingencies and any break-up fee |
Price is only the start
Many sellers focus on the headline number and lose ground in the mechanics. A working capital adjustment compares the receivables, inventory and other short-term items left in the business at closing with an agreed target, often called the peg, and moves the price up or down by the difference. A target set too high quietly lowers what you receive. So does a broad definition of debt that sweeps in items you considered ordinary operating costs.
Deferred payments belong in the same conversation. An earnout (part of the price paid only if the company reaches future targets) or a seller note needs clear terms: how results are measured, who controls the decisions that affect them, when payments fall due and what security you hold if they stop.
Where sellers carry risk after closing
Representations and warranties are statements you make about the company: that the financial statements are accurate, that taxes have been paid, that there is no undisclosed litigation. If one proves untrue, indemnification is how the buyer recovers. The protective terms are a cap on the total you can owe, a deductible (often called a basket) below which small claims are not paid, and a survival period after which claims expire. Some buyers use representation and warranty insurance, which moves much of this risk to an insurer; whether it suits a deal depends on its size and the cost.
The best protection is thorough disclosure, because anything listed in the schedules generally cannot be claimed as a breach later. Our guide to the representations and warranties a seller should expect and our answer on protecting yourself from post-closing liabilities go further on both points.
Keep the business running while the contract is drafted
Negotiation of the purchase agreement usually overlaps with due diligence, and together they make up the most demanding stretch of a sale. Two things protect you. First, have your financial records in order before the buyer's accountants arrive, since questions about the numbers are what most often reopen the price. Second, keep your attention on the company. Interim covenants restrict what you may do between signing and closing, but results still count, and a weak month can hand a buyer a reason to renegotiate.
Tension is normal. Each side's attorney is protecting a client, and drafts will go back and forth several times. What helps is an experienced negotiator who knows which points are standard and which are worth a fight, working alongside a transaction attorney whose aim is to close the deal on sound terms rather than to win every clause.
How MDR & Associates works on the purchase agreement
The legal documents are step nine of our ten-step process, after due diligence and before closing. Your transaction attorney drafts or reviews the contract; we work alongside your attorney and CPA on the business terms, including the working capital target, deferred payments and the transition period, and a principal of the firm is in every negotiation. Because we negotiate multiple letters of intent at the same time, many of these terms are settled while buyers are still competing. To discuss a sale, contact us for a confidential conversation.
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Questions owners ask next
Who writes the first draft of the purchase agreement?
Usually the buyer's attorney prepares the first draft, and your attorney responds with changes. In some competitive sales the seller's side drafts first, which lets it set the starting positions. Either way, your own transaction attorney should review every draft and the disclosure schedules before you sign anything.
How long does it take to negotiate a purchase agreement?
It depends on the size of the deal, the buyer and how quickly due diligence runs, since the two usually happen together. Clean records and complete disclosure schedules shorten it. Disputes over indemnification and the working capital target are the points that most often add weeks.