The Essentials of a Purchase and Sale Agreement

You’ve reached the stage of the merger and acquisition process where you’ve completed the due diligence process and are ready to put pen to paper.

This is when every paragraph, sentence, and word should be reviewed by experienced professionals to successfully draft contracts for the sale of companies. In most cases, the purchaser and their legal advisors are already at work preparing the first version of the purchase agreement.

Those involved in their first acquisition can be overwhelmed by the numerous complexities that must be addressed. The qualified team of merger and acquisition experts at Jacko Law Group, PC, are experienced in the many nuances that must be covered in contracts to consummate a successful business transaction.

While the terms of a purchase and sale agreement can vary since every acquisition is unique, here’s a partial list of what it should include:

Description of the Transaction 

There are several essential terms that must be included in a purchase and sale agreement.  This includes a description of the parties, what is being sold (i.e., description of the assets), closing date, purchase price, and any contingencies.  It is also important to include what is and is not included in a transaction and any special conditions (such as look back provisions or ongoing servicing arrangements from the seller).

Typical Agreements within the Purchase and Sale Agreement

While the purchase and sale agreement is intended to identify what is being sold and the essential terms of the transaction, other agreements (generally found in the appendix) detail financing and other conditions of the transaction. For example, will there be a promissory note and/or guaranty agreement? What about a Bill of Sale or Tax Allocation Agreement? Frequently, business transactions also have Restricted Covenants, which should be carefully reviewed by experienced counsel.

Representations and Warranties

Representations are assertions by the buyer and seller that the statements they make are true. For the seller, these include disclosures about the business to guarantee such factual aspects as its ability to make the sale, the condition of the business, and the accuracy of financial statements. Warranties are assertions of representations that provide a form of indemnity if the agreed-upon conditions of the sale are not met.

This tends to be a heavily negotiated part of a purchase and sale agreement that underscores the need for the buyer and seller to rely on specialized legal advice. The seller, for example, must be certain not to overpromise or underdeliver and risk the possibility of costly litigation.


Indemnity clauses are included in purchase and sale agreements as a means of allocating risk. Three of the most common risks addressed are operational risk, financial risk, and legal risk.

Operational risk refers to the people, process, and technologies involved in a transaction. Financial risk protects the buyer from hidden taxes owed by the seller or other undisclosed financial liabilities. An example of legal risk is when either the buyer or seller fails to get the regulatory approval it promised to provide.


A covenant is an enforceable promise by a buyer or seller regarding actions they will or will not make between the signing of the purchase and sale agreement and the closing of the transaction.

A positive covenant can be an assurance by the seller that it will take responsibility for any regulatory approval that may be required. A restrictive covenant can be a promise by the seller not to do anything that would adversely affect the business, such as agreeing to non-compete and non-solicitation of clients and employees.

Closing Conditions 

These are agreed-upon provisions that both parties must meet to close a transaction. Examples of closing conditions include the ability to secure regulatory approval, concerns about deal-specific conditions and deliverables, and the delivery of ancillary documents and agreements.

Termination Rights

This language provides the ability for any transaction, under specified circumstances, to be terminated before closing by mutual consent. Termination rights benefit both parties from unforeseen events, such as a global pandemic.

A Final Word

The terms of any purchase and sale agreement are among the most important aspects of any merger and acquisition transaction. This is the state of the process where specialized legal advice can help buyers and sellers of any business avoid sleepless nights and deal remorse. JLG  tailor purchase and sale agreements to fit the specific needs of your business transaction designed to advance your interests and achieve a seamless outcome. For more information, contact us at (619) 298-2880 or visit to learn more.

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