The Contract for Selling a Business: What Goes In It (2026)

The legal documents in a business sale do one job: they turn a handshake into an enforceable, defensible transfer of ownership. Get them right and the deal closes cleanly and stays closed. Get them wrong, vague price terms, missing reps and warranties, a sloppy non-compete, no indemnification cap, and you’ve created a lawsuit waiting to happen, on either side. This guide walks through what each document does, what the key clauses are, and where sellers and buyers most often get burned.

This guide is written for owners selling a privately held business and is general orientation, not legal advice. It covers the structure of the purchase agreement, the asset-versus-stock-sale decision, the key clauses, and where sellers get burned. We’re CT Acquisitions, a buy-side M&A advisory firm, sellers pay nothing, the buyer pays our fee at closing. For the broader process, see our how to sell your business guide; for what the business is worth, our valuation resources.

The document set in a business sale

“The contract” is rarely one document. A typical privately held business sale involves:

• Letter of Intent (LOI): mostly non-binding, sets price, structure, exclusivity, and timeline. The binding parts are usually exclusivity and confidentiality. Get the structure (asset vs. stock) and the major economic terms right here, re-trading them later is expensive and erodes trust.
• Purchase Agreement: the definitive contract, either an Asset Purchase Agreement (APA) or a Stock Purchase Agreement (SPA) (or Membership Interest Purchase Agreement for an LLC). This is the document. Everything else supports it.
• Bill of Sale and Assignment & Assumption Agreements: the instruments that actually transfer specific assets, contracts, and liabilities at closing.
• Disclosure Schedules: the seller’s detailed exceptions to the representations and warranties. Underrated, and where a lot of post-closing disputes are won or lost.
• Restrictive covenants: non-compete, non-solicitation of customers and employees. Often a standalone agreement or a section of the purchase agreement.
• Employment or consulting agreement: for the seller’s transition period.
• Escrow agreement: if part of the price is held back to secure indemnification obligations.
• Promissory note and security agreement: if there’s seller financing.

Asset sale vs. stock sale, decide this first

This single choice changes the document set, the tax bill, and the liability exposure. In an asset sale, the buyer purchases specific assets and assumes only specified liabilities; sellers generally face higher taxes (some gain taxed at ordinary rates), buyers get a stepped-up basis and walk away from unknown liabilities. In a stock sale, the buyer purchases the equity and the entity comes with everything, assets, contracts, and liabilities (known and unknown); sellers usually get cleaner capital-gains treatment, buyers take on more risk and demand stronger reps, warranties, and indemnification. Most small-business sales are asset sales; larger deals and deals with non-transferable contracts or licenses are more often stock sales. Decide with your CPA and attorney before the LOI, not after.

The clauses that cause the most disputes

Purchase price and adjustments

Rarely a flat number. Expect a working-capital adjustment (a post-closing true-up against a target level of working capital, this is where buyers and sellers fight after closing), possible holdbacks or escrows, and sometimes an earnout tying part of the price to future performance. Earnouts bridge valuation gaps but are a frequent source of litigation, define the metric, the measurement period, the accounting methodology, and the buyer’s operating obligations precisely.

Representations and warranties

The seller’s statements of fact about the business, financials, taxes, litigation, contracts, employees, intellectual property, compliance. Breach a rep and the buyer has an indemnification claim. Negotiate knowledge qualifiers (“to the seller’s knowledge”) and materiality qualifiers, and disclose thoroughly on the schedules, a disclosed problem is generally not a breach.

Indemnification

The remedy mechanism for breaches. Key terms: the cap (maximum the seller can owe, often 10-20% of price for general reps), the basket/deductible (threshold before claims count), the survival period (how long reps live post-closing, often 12-24 months for general reps, longer for fundamental reps and taxes), and fundamental reps (title, authority, taxes, often uncapped or capped at the full price and surviving longer). Consider representations and warranties insurance on larger deals, it shifts this risk to an insurer.

Restrictive covenants

A non-compete in a business sale is generally enforceable (it protects the goodwill the buyer paid for) but must be reasonable in scope, geography, and duration, typically 3-5 years. Over-broad non-competes get struck down or narrowed by courts. The non-solicitation of customers and key employees is often the more important practical protection.

Closing conditions and termination

What has to be true for either side to be obligated to close (consents obtained, no material adverse change, financing in place), and when either side can walk. A loose “material adverse change” definition is a buyer’s escape hatch, negotiate it.

Where sellers most often get burned

• Agreeing to structure in the LOI without modeling the after-tax proceeds. An asset sale at a higher headline price can net less than a stock sale at a lower one.
• Thin disclosure schedules. Every known issue, customer concentration, pending dispute, off-balance-sheet liability, employee claim, belongs on the schedules. Disclosed = generally not a breach.
• Uncapped or barely-capped indemnification on general reps. Push for a cap (commonly 10-20% of price) and a real survival sunset.
• Earnouts with vague metrics and no protection for how the buyer runs the business. If you can’t precisely define and police it, take less cash up front instead.
• Personal guarantees and broad non-competes that outlast the consulting period. Negotiate scope and duration.
• No advisor running a competitive process, so there’s no leverage to negotiate any of the above. Terms follow leverage; leverage follows having more than one credible buyer.

How we know this: the ranges, timelines, and dynamics on this page come from the transactions we’ve worked on and the buyer mandates in our network of 100+ active capital partners. They’re informed starting points, not guarantees, your actual outcome depends on the specifics of your business and your situation.

Where the buyer-paid model fits

A sell-side advisor doesn’t replace your attorney, the attorney drafts and negotiates the legal documents. The advisor’s job is everything around them: positioning the business, finding and qualifying buyers, running a competitive process so you have leverage in those negotiations, and managing the deal so it actually closes. With the buyer-paid model, the seller pays no advisory fee, the buyer pays at closing. See our broker alternative guide for how the model works and our about page for who we are.

The five pillars of how CT Acquisitions works

Frequently asked questions

What is a contract for selling a business called?

The definitive contract is a Purchase Agreement, an Asset Purchase Agreement (APA) if the buyer is purchasing assets, or a Stock Purchase Agreement (SPA) / Membership Interest Purchase Agreement if buying the entity’s equity. It’s accompanied by a bill of sale, assignment and assumption agreements, disclosure schedules, restrictive covenants, and usually an employment or consulting agreement for the seller’s transition. A letter of intent (LOI) typically precedes the definitive agreement.

Do I need a lawyer to sell my business?

Yes. Even a small business sale involves tax structuring, representations and warranties, indemnification terms, and restrictive covenants that materially affect what you net and what you’re exposed to afterward. A transactional M&A attorney drafts and negotiates the documents; a sell-side advisor handles positioning, buyer sourcing, and process. Templates are starting points, not finished contracts, and a bad one costs far more than the legal fee.

What is the difference between an asset sale and a stock sale?

In an asset sale, the buyer purchases specified assets and assumes only specified liabilities; sellers typically pay more tax, buyers get a stepped-up basis and avoid unknown liabilities. In a stock sale, the buyer purchases the equity and the entity comes with everything, including unknown liabilities; sellers usually get cleaner capital-gains treatment, buyers demand stronger reps and indemnification. Decide this with your CPA and attorney before signing the LOI.

What are representations and warranties in a business sale contract?

They’re the seller’s statements of fact about the business, financials, taxes, litigation, contracts, employees, intellectual property, compliance. If a rep turns out to be false, the buyer has an indemnification claim. Sellers negotiate knowledge and materiality qualifiers and disclose exceptions on the disclosure schedules; a properly disclosed issue is generally not a breach.

What is an indemnification cap?

The maximum dollar amount a seller can be required to pay for breaches of general representations and warranties, commonly 10-20% of the purchase price, often backed by an escrow holdback. ‘Fundamental’ representations (title, authority, taxes) are typically uncapped or capped at the full purchase price and survive longer. Negotiating a real cap and a survival sunset is one of the most important protections for a seller.

How long does it take to close a business sale once the contract is drafted?

From signed LOI to closing is commonly 60-150 days for a privately held business: the purchase agreement gets negotiated alongside due diligence, then third-party consents, financing, and closing mechanics. Off-market deals to pre-qualified buyers tend to compress this; broker auctions with many tire-kickers stretch it. The contract drafting itself is usually 2-6 weeks of back-and-forth between counsel.

Can I sell my business without a non-compete?

Rarely, and you usually shouldn’t want to. The buyer is paying for goodwill, customer relationships, and a market position you could otherwise rebuild and compete with. A reasonable non-compete (typically 3-5 years, limited to the relevant geography and line of business) is standard and generally enforceable in a sale context. The negotiable parts are scope, geography, duration, and what carve-outs you get for unrelated activities.

What is a working capital adjustment?

A post-closing true-up: the parties agree on a target level of net working capital the business should have at closing, then compare actual closing working capital to the target and adjust the price up or down. It prevents the seller from stripping cash or stuffing payables right before closing. It’s also one of the most common sources of post-closing disputes, so the definition of ‘working capital’ and the calculation methodology should be spelled out precisely in the purchase agreement.

Related research

• Free Business Valuation Tool, your business is worth in 90 seconds
• The Business Broker Alternative Guide (national pillar)
• Business Brokers by State, with a free alternative
• The Complete Guide to Selling Your Business in 2026
• What’s My Business Worth? Founder’s Valuation Guide
• Who Buys These Companies? Buyer Types Explained
• How to Sell to Private Equity, A Founder’s Walkthrough
• Owner’s Pre-Exit Checklist, 90 Days Before You List
• CT Commentary, Founder & M&A Insights