Buying an Operating Business – Step 2.  Make sure your purchase agreement is well developed and covers post-closing matters!

October 9, 2025  |  Carole Clark Isakson

A large portion of my day is spent working on transactions for clients who are either buying a business or selling a business. Having walked so many people through this process over the last three decades I have a pretty well-developed system for explaining how transactions typically work, what issues to watch for, and best practices. This blog is the SECOND of three addressing the sales and acquisition process for private transactions. For simplicity, I will address the process from the buyer’s perspective. I will also assume that the companies involved are corporations, although of course they could just as easily be limited liability companies, in which case the information will be the same, albeit with different terms.

While the topics covered in this blog and the statements made apply in the majority of transactions, every transaction is different. Do not rely on this blog when undertaking a transaction; that should be done in connection with legal, tax and other professionals.

Here is a reminder of the typical sales process:

1. Execution of Non-Disclosure Agreement and preliminary limited information sharing.
2. Execution of a Letter of Intent, which triggers much more extensive information sharing and the start of the formal due diligence process.
3. Negotiation of the Purchase Agreement terms, and completion of all due diligence.
4. Closing!
5. Post closing matters.

Step 2.  You’ve investigated the Seller and its operations enough to know that you’re interested and want to keep talking. As the buyer, you’ve signed a Letter of Intent, and your next step is to work on the purchase agreement while you proceed with a deeper dive into what you are buying. Typically these two things are happening at the same time. The buyer will look at information while the professionals start working on the purchase agreement. Information gained in due diligence will impact the terms of the purchase agreement. What types of information are gathered in due diligence? Here is a standard list, but the extent of investigation will depend somewhat on the buyer’s existing knowledge of the business, and the risk involved:

1. Organizational/Capitalization documents. Org chart, stock ledger, states of operations and other related documents need to be reviewed to ascertain ownership of the company, and restrictions on internal transfers (more important in a stock deal).
2. Material Contracts and Operations. This includes customer information, supplier and vendor contracts, leases, related party agreements, joint venture agreements, loan agreements and more.
3. Government filings. Permits, licenses, waivers – what government permissions does the seller’s business need to operate? Are those transferrable?
4. Real estate and properties, including environmental. Leases, options, owned real estate, options and projects in development should all be disclosed. Any environmental issues?
5. Employment matters. Employment agreements? Independent contractor agreements? Benefit plans and more.
6. Intellectual Property. Does the company own any patents, trademarks or copyrights? How about trade secrets? Has it registered the IP that can be registered? Also consider data privacy and security matters; this is more important in some industries than others.
7. Litigation. Has the seller been sued in the last 5 years? For what? What was the resolution?
8. Tax & Financial. Detailed tax and financial information will be requested, for a period of 3 to 5 years.
9. Insurance. Has the seller been fully insured? Any claims pending? Review loss runs and related information.

As all of this information is being gathered and analyzed, the legal team is working on the purchase agreement. It will cover all aspects of the transaction, including the purchase price (how it is calculated, when it is adjusted and how it is to be paid), whether the deal is an asset deal or a stock deal, whether an escrow is used, what representation and warranties the seller is making to the buyer as part of the transaction, what the contingencies are that must be met before the deal closes, and much, much more. You can expect that the purchase agreement will pass back and forth from the seller’s counsel to the buyer’s counsel many times. The issues will be narrowed down from draft to draft. Ultimately the focus is on risk. Who bears the responsibility for things discovered after closing that were not as expected? What if this discovery is many years later? Think of a tax audit in a stock deal, or a successor liability claim in an asset deal. It is beyond the scope of this blog to fully analyze a well drafted purchase agreement, but qualified and experienced attorneys will ensure that all topics are fully covered and risks known.

Step 3? Is blog #3. How does closing work? And what if things go wrong after closing?