The Closing Documents
Closing a business sale involves signing a set of documents that transfer ownership, define the terms, and satisfy legal and financing requirements, chiefly the purchase agreement, bill of sale, assignments, and (where applicable) financing and non-compete documents. Your attorney prepares and reviews these, and the escrow holder coordinates their signing. Here's what the key documents do.
Whether you're buying or selling, get a broker's guidance to navigate escrow and closing smoothly, and avoid the delays and pitfalls.
The Purchase Agreement
The definitive purchase agreement (asset purchase agreement or stock purchase agreement) is the master contract, it details the price, what's being sold, representations and warranties, conditions, indemnities, and terms. It's the binding document that replaced the Letter of Intent and governs the entire deal. Everything else flows from it.
Bill of Sale and Assignments
The bill of sale transfers the tangible assets (equipment, inventory, fixtures) to the buyer. Assignment documents transfer specific rights, the lease assignment, assignment of key contracts, and transfer of licenses and permits where allowed. In an asset sale, these convey the assets and goodwill; in a stock sale, the entity's shares transfer instead.
Financing Documents
If financing is involved, additional documents are signed: the lender's loan documents (for an SBA or bank loan) and, for seller financing, a promissory note and security agreement documenting the seller's carryback and how it's secured. These define the buyer's repayment obligations.
Non-Compete, Allocation, and More
- Non-compete agreement — the seller's commitment not to compete, protecting the goodwill
- Consulting / transition agreement — the seller's post-closing involvement
- Purchase-price allocation — how the price is allocated across asset classes (tax-relevant)
- Escrow instructions, disclosures, and closing statements
Review Everything
These documents carry real legal and financial weight, so have your attorney review everything before signing. Understand what you're committing to, the reps and warranties, the non-compete scope, the note terms. The escrow holder coordinates the signing and ensures everything is in place to close. See what happens on closing day and how escrow works.
Note: This article is general educational information, not legal, tax, or financial advice. Escrow and closing requirements vary by state and deal — work with a qualified escrow holder, attorney, and CPA.
Frequently Asked Questions
What documents are signed when buying a business?
The key documents are the definitive purchase agreement (asset or stock purchase agreement), the bill of sale transferring tangible assets, assignment documents for the lease and contracts, financing documents (lender loan documents and, for seller financing, a promissory note), a non-compete agreement, any transition or consulting agreement, the purchase-price allocation, and escrow instructions and closing statements.
What is the purchase agreement in a business sale?
The definitive purchase agreement (asset purchase agreement or stock purchase agreement) is the master contract detailing the price, what's being sold, representations and warranties, conditions, indemnities, and terms. It's the binding document that replaces the Letter of Intent and governs the entire deal, with everything else flowing from it.
What is a bill of sale in a business acquisition?
A bill of sale is the document that transfers the tangible assets, equipment, inventory, and fixtures, from seller to buyer. In an asset sale it works alongside assignment documents to convey the assets and goodwill, while in a stock sale the entity's shares transfer instead of individual assets.
Should an attorney review closing documents?
Yes. Closing documents carry significant legal and financial weight, the reps and warranties, non-compete scope, seller-note terms, and indemnities all matter. Have your attorney prepare and review everything before signing so you understand exactly what you're committing to. The escrow holder coordinates the signing but doesn't represent either party's interests.
Preparing to Sign and Close?
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