Feb 24, 2023

Key Legal Documents in a Business Sale

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When going through a business transaction, there are a number of legal documents that are required. For most buyers and sellers of small businesses, it’s the first time they are encountering these documents.

For a seasoned small business owner, it may seem like overkill. However, it’s worth considering the position of a buyer. Oftentimes a small business buyer is taking out a personally guaranteed loan, attaching a lien to his or her house, and is being required by the bank to execute the documents.

After all, there’s no such thing as free money and it’s better to be safe than sorry. This post outlines some of the common documents in a business transaction.

Negotiating a Deal

Non-disclosure Agreement

In a business sale, there is often a non-disclosure agreement that is executed by the seller and prospective buyer. The purpose of this document is to protect the seller. 

As most owners desire a confidential sale, so as not to spook existing clients, employees and suppliers, an NDA is requested at the outset. 

This NDA ensures that the prospective buyer does not disclose (a) that the business is for sale, and (b) any information learned during the course of evaluating and negotiating the purchase of the business.

After all, without a non-disclosure agreement, a competitor could kick the tires of a business for sale and then turn around and poach employees and customers of the business.

Letter of Intent

The letter of intent (LOI) outlines the basic terms and conditions of a purchase agreement. Typically, this agreement is non-binding with the exception of a few clauses:

Closing the Deal

Once an LOI has been signed by the buyer and seller of a small business, the period of being “under contract” begins. During this 30-90 day period, the buyer will perform some due diligence on the business, go through underwriting with a bank, and ultimately start negotiating the final legal documents to close the deal with the selling business owner.

Purchase Agreement

The purchase agreement contains the “juice” of the transaction. This document can run from 6 to 30 pages, depending on the attorney drafting the agreement. It will contain basic legal information, such as the parties to the contract, the price of the acquisition, and the closing date. It will also include a number of other clauses:


Given that most owners are selling a local small business, the buyer will want to ensure that the selling owner will not compete against him or her. The typical small business owner has built up relationships with clients for years. The strength of their relationships with clients would make it easy for them to poach the clients for a new venture.

As part of a non-compete agreement, there are typically two main terms:

Typically it’s a 3-5 year non-compete in a 100-mile radius around the business. However, there may be carve outs for servicing friends and family with work. For instance, an auto shop owner may agree to not compete against the buyer for 5 years in a 50-mile radius, with the exception of doing repair and maintenance work for related family members. 


Aside from customers, owners often have strong relationships with their employees. They may have provided them with jobs straight out of trade school or college. If they wanted to bring them over to a new venture, they’d be able to with relative success. Additionally, small businesses are only successful so far as they have great clients and great employees. Poaching employees can have a significant impact on the business’s ability to generate revenue and profits.

A non-solicit prevents owners from soliciting their previous employees after selling the business.

Promissory Note

At Beacon, a majority of our transactions include a promissory note between buyer and seller for anywhere from 5% to 60% of the purchase price. This note is commonly referred to as seller financing.

Promissory notes have a number of terms to be negotiated:

Lease Agreement

In addition to the above documents, there will often be a lease drafted between the buyer and seller or the buyer and the landlord. This agreement should include a number of terms:

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Will Simmons
Will Simmons
Transaction Advisor

Will is responsible for helping sellers market their businesses to prospective buyers and providing hands-on support from offer to close. Using his background in mergers and acquisitions at Wells Fargo, he drives value and provides clients with the necessary resources, best practices and advice for a successful sale of their business.

Information posted on this page is not intended to be, and should not be construed as tax, legal, investment or accounting advice. You should consult your own tax, legal, investment and accounting advisors before engaging in any transaction.