Now that you have found a business and have basically come to an agreement with the seller on the major terms and conditions (the Letter of Intent has been accepted) and you have completed your due diligence to your satisfaction, one of the parties, the seller or buyer will “draft” the numerous agreements that make up the set of “Purchase Agreements” and associated documentation. The party that drafts the agreements goes to their legal firm and has them produce a set of agreements and other documents that will be the package of agreements that both buyer and seller sign in order to actually consummate the purchase transaction.
The reason the term “draft” is applied is because they are a set of documents, created by a party on one side of the transaction that have not yet been agreed to, or vetted by the other party. You may think that it is more economical for you to have the seller draft and it probably is, at least up-front. But if the seller drafts it makes it a lot more difficult for you to delete, add/or change any of the terms and conditions. If you draft, you start off with exactly what you want and the seller must then take exception. In the reverse, if the seller drafts you are the one who must take exception.
Everyone generally has a tendency to accept the smaller points within an agreement when it is presented to them, rather than appear petty by saying they want it changed. I have found, that in general the party that drafts gets a lot more of what they want then the party that doesn’t. As well, your lawyer will add all the necessary protection clauses that are appropriate for you as the buyer, where the seller’s lawyer will generally not include those clauses or they will be extremely weak.
I am a firm believer in having “arbitration clauses” in contracts and agreements and I highly suggest that you discuss the use of an arbitration clause within your definitive Purchase agreements with your lawyer. An arbitration clause allows for a means of settling a dispute that is much quicker and much less expensive than utilizing the courts. The most common arbitration clause is that the parties, in this case the buyer and the seller, having the disagreement, hire an individual to act as an arbitrator. It is important that the arbitrator be acceptable to both parties. A lot of arbitration clauses state that the decision of the arbitrator is final. Where there are entities, such as a corporation, involved in the dispute rather than individuals the arbitration clause may allow for each entity to pick a person to represent them and then those two individuals pick a third, again the arbitration is usually specified as "binding arbitration".
In my opinion the Disclosure clause that was part of the due diligence exercise should also appear in the Purchase Agreement. "I have fully disclosed all items, financial and otherwise, that pertain to the business its operation and value. I have also fully disclosed any items financial and otherwise, that I am cognizant of, that may have a detrimental effect on the business in the future".
Although there will most likely be a document called the “Purchase Agreement” the actual purchase of the business will most likely be made up of numerous agreements and contracts all pertaining to the purchase of the business and/or company and referencing each other that are independently written. There is no legal reason that the purchase of the business could not be consummated with one agreement with clauses covering each of the points instead of individual agreements. However, as a general statement it is easier, when negotiating the sale through draft agreements, to be able to agree on a specific point through a separate agreement rather than negotiating every clause in one agreement.
Following is a list of some of the agreements, contracts and documents that your lawyer may draw up. Not all of the agreements will be relevant in each and every purchase transaction and as well the size and complexity of the transaction will have a baring on the number of agreements.
General Purchase Agreement:
The Purchase Agreement will define the terms and conditions that you have agreed to actually acquire the business. It will define the amount you are paying (the financial consideration) and for exactly what and the terms of such payment(s). It will define who is paying what legal expenses and commissions and/or finders fees. It will define inventory values and should provide a detailed asset list. It will have whatever "save harmless" clauses have been agreed to between you and the seller.
The Purchase Agreement will also cover basic items such as legal jurisdictions, lawsuits, arbitration clauses, due diligence disclosure clauses and addresses to forward any and all correspondence for both parties. As a general statement it will also reference any and all other agreements and documents that are part and parcel of the buy/sell transaction. In other words, the Purchase Agreement is the master document for the buy/sell transaction.
Facilities Lease Agreement:
If you are leasing the facilities from the current owner of the business it would be expected that there would be a new lease agreement as part of the buy/sell transaction. The lease document that the seller would of had with himself would most likely not have the normal lease clauses that a third party lease document would have.