Purchase/Sale Agreement Review

Checklist Explanation: This checklist is intended as guidance for reviews by both the buyer’s and seller’s attorneys and tax advisers of purchase/sale agreements to ensure critical issues are addressed in the document. 

Purchase/sale agreements should normally cover the matters listed below, in addition to any other issues that apply to the particular transaction in question.

• Price
• Purchase/Sale Terms including:
• Closing date
• Clear definition of what is being purchased
• Identification of all parties involved in the transaction
• Buyer and seller representations, obligations and warranties
• Form of consideration (All cash, shares in a new company, retirement of debt)
• Timing of consideration (Paid on closing versus pay out over time)
• Buyer & seller conditions, both pre & post close, including any indemnification provisions
• Creation of applicable schedules (Financial statements, asset lists, employee lists, etc)
• Creation of sub agreements (Employment contracts, USA, leases, etc)

Note: The entire purchase price should be accounted for in the description of the consideration given for the stock or assets being sold. 

Representations of Buyer and Seller 

• Regarding ownership of assets being sold 
• Regarding legal authority of individuals to conduct the transaction 
• Regarding existence of actual and contingent liabilities 
• Regarding liabilities secured by assets 

Pre-closing Obligations of Buyer and Seller 

• Buyer’s access to seller’s records 
• Seller’s conduct of business as usual during pre-closing period 
• Seller’s maintenance of adequate insurance during pre-closing period 
• Limitations on seller transactions that would diminish assets or otherwise harm the business during the pre-closing period 
• Buyer’s provision of financial information 
• Buyer’s provision of information showing arrangements to secure adequate financing buyer’s agreement to maintain confidentiality 

Pre-closing Conditions 

• Buyer ascertaining before closing that all seller representations are reasonably accurate and that there have been no material adverse changes in the financial condition or operations of the target 
• Seller has obtained title insurance policies on all real property included in the deal Buyer has obtained assurance that lease rights are assignable 
• The necessary governmental and regulatory approvals have been obtained 
• Buyer’s representations are reasonably accurate 
• Buyer has obtained third-party guarantees for any debt established under the agreement 

Closing Procedures—This part of the agreement specifies the property, payments, and documents that will be transferred between buyer and seller in completion of the transaction and the time and place of the closing meeting. 

Post-closing Obligations

• Generally, the post-closing obligations of the seller involve taking specified actions if seller representations turn out to be inaccurate and honoring any noncompete agreements. The buyer may also have post-closing obligations.
• Miscellaneous and Optional Provisions 
• Which party will pay business broker’s or finder’s fees and transaction costs 
• Arbitration procedures in the event of disputes between buyer and seller 
• Which laws govern the transaction 
• Circumstances whereby either party can terminate the agreement without penalty (such as litigation, inaccurate representations, or default by one of the parties regarding compliance with other terms of the purchase/sale agreement)

Other:  Making sure certain contracts are in place related to the business sale.  This could include employment contracts for senior managers, lease agreements on land and buildings and supplier agreements for key inputs.

Note: The buyer should be particularly interested in negotiating language giving the desired flexibility to cancel the deal.