Business Purchase and Sale Agreements

Asset purchase or equity purchase

Most small and mid-sized business sales in Iowa are structured as asset purchases. The buyer acquires the assets that make up the business, typically equipment, inventory, customer lists, contracts, intellectual property, goodwill, and the trade name, and takes on only the liabilities it agrees to assume. The seller keeps the entity and whatever liabilities stay with it. Buyers generally prefer this structure because it limits inherited exposure and allows a stepped-up tax basis in the purchased assets.

An equity purchase works differently. The buyer acquires the ownership interests in the entity itself, and the business continues under the same legal identity with its contracts, licenses, permits, and liabilities intact. Sellers often prefer equity deals for tax reasons, and the structure can be the practical choice when key contracts or licenses would be difficult to assign. The trade-off is that the buyer inherits the entity’s history, known and unknown, which makes the representations, warranties, and indemnification provisions carry far more weight.

We help clients choose the structure that fits the deal, in coordination with their accountants, and then draft the agreement that structure requires.

What the agreement has to cover

A business purchase agreement does more than state a price. It identifies the purchased assets and excluded assets with precision, allocates the purchase price among asset classes in a manner both sides will report consistently, and sets out the representations and warranties each party makes about the business, its financials, its contracts, its employees, and its compliance with law. It defines the buyer’s due diligence rights and the conditions to closing, structures any escrow or holdback securing post-closing claims, and sets the survival periods, caps, and baskets that govern indemnification.

The agreement also carries the deal’s ancillary documents: the bill of sale and assignment and assumption agreement that actually transfer the assets, the noncompete and nonsolicitation covenants that protect the goodwill the buyer is paying for, the assignment of the premises lease with the landlord’s consent, the transition services or consulting arrangement for the seller, and, where the seller is carrying part of the price, the promissory note and security documents. When real estate transfers with the business, a companion commercial purchase agreement and closing are part of the package.

How this work connects to the rest of the practice

A business sale rarely happens in isolation. Buyers usually need a new entity to hold the acquired business, and we form it so the operating agreement and the purchase agreement work together. The premises lease is often the single most important contract being assigned, and landlord consent can drive the closing timeline. If the seller owns the building, the real estate is a separate transaction, with its own purchase agreement and closing, that runs alongside the business sale. When the buyer is borrowing to fund the acquisition, or the seller is financing part of the price, the loan documents have to line up with the purchase agreement’s closing conditions and security.

We handle that coordination as part of the engagement rather than leaving it to the client to manage between advisors.