Business Purchase Agreement (Asset & Stock) | All 50 States

A business purchase agreement (often shortened to BPA, or styled as an Asset Purchase Agreement and Stock Purchase Agreement depending on structure) is the definitive contract that closes the sale of a business. It supersedes everything that came before it: the letter of intent, the term sheet, the back-and-forth emails. Once signed, it is the document a court reads when a dispute arises, which is why every operative term has to be precise rather than aspirational.

The structure you choose changes the entire document. In an asset sale, the seller's entity sells a defined list of assets (equipment, inventory, contracts, intellectual property, goodwill) and the buyer assumes only the liabilities it expressly agrees to take. Everything left off the schedule stays behind with the seller. In a stock sale, the owners sell their equity, the legal entity continues unchanged, and the buyer inherits everything, including known debts, pending lawsuits, and any liability nobody discovered during diligence. That distinction drives tax treatment, successor liability, and which contracts survive closing, so it is settled first and shapes every clause that follows. A buyer who signs a stock deal expecting the clean slate of an asset deal has misread the most basic part of the agreement.

This is also where people confuse a BPA with a bill of sale. A bill of sale transfers title to specific property; it is a closing deliverable. The purchase agreement is the governing contract that obligates the parties to close in the first place and allocates risk for years afterward.

Business sales in the United States sit at the intersection of state contract law, the Uniform Commercial Code, and federal tax rules, with no single statute controlling the whole transaction. The agreement itself is governed by the common law of contracts in the state named in the governing law clause, which is why that clause is never boilerplate. Delaware, New York, California, and Texas each apply different defaults to indemnification scope, fraud carve-outs, and the enforceability of "sandbagging" provisions, so the choice of law is a substantive decision rather than a formality.

For asset deals, the UCC matters in two ways. First, where the sale includes goods, Article 2 supplies the warranty backbone, including implied warranties of merchantability that a seller will usually disclaim expressly. Second, the now-largely-repealed Article 6 bulk sales rules still apply in a handful of jurisdictions and require creditor notice before a sale of substantially all inventory, with thresholds and exemptions worth confirming in the seller's state. Most states have repealed Article 6, but a buyer who assumes it is gone everywhere can inherit successor liability for the seller's unpaid creditors. You can review the current text and adoption notes through the Cornell Legal Information Institute's summary of UCC Article 6 bulk sales applicability.

On the federal side, every asset sale of a going concern triggers Section 1060 of the Internal Revenue Code. Both buyer and seller must file matching Form 8594 allocating the purchase price across seven asset classes using the residual method, with anything left after tangible assets flowing into goodwill. The allocation is heavily negotiated because goodwill earns the seller capital-gains treatment while equipment exposes them to depreciation recapture at ordinary rates. Stock sales skip Form 8594 entirely, which is one more reason structure is decided before drafting begins.

The clearest trigger is a completed negotiation: you have agreed on price and structure with the other side and need to lock the deal into an enforceable contract before either party can walk. A signed letter of intent is not enough on its own, because most of it is non-binding. The purchase agreement is what converts intent into obligation, and serious buyers refuse to fund escrow without one. Our shareholder agreement template for C-corps and S-corps often sits alongside a stock-sale BPA when an investor is buying into an existing cap table rather than acquiring the whole company.

Asset deals call for this agreement when a buyer wants a clean break from the seller's history: no inherited litigation, no surprise tax bills, only the assets that generate revenue. A buyer acquiring a restaurant's equipment, lease, and brand while leaving its vendor debt behind is the textbook case. Stock deals show up when the value lives in the entity itself, in licenses, permits, or long-term contracts that would be expensive or impossible to reassign. Government contractors frequently choose stock sales precisely to avoid novating every federal agreement.

Two edge cases legitimately complicate the choice. First, change-of-control clauses: a stock sale usually leaves customer contracts in place, but a major client's master agreement may treat the ownership change as a termination event, gutting the value the buyer is paying for. Second, a buyer financing the deal with a seller note needs security, which means an asset sale pairs with a UCC-1 filing while a stock sale relies on a share pledge held in escrow until the note is paid. Diligence on the seller's LLC operating agreement and its buyout provisions often surfaces these traps before signing.

• The structure and purchased assets / transferred equity provision defines exactly what changes hands. In an asset deal it attaches detailed schedules of included assets and excluded assets, because vague language like "substantially all assets" is the most litigated phrase in the document and routinely produces six-figure fights over a single piece of equipment. In a stock deal it identifies the shares or membership interests precisely and confirms they transfer free of liens.
• The purchase price and allocation clause states the consideration, the payment mechanics (cash at closing, seller note, earnout), and for asset deals the Section 1060 allocation that both parties will report on matching Form 8594 filings. Earnouts are drafted with their own metrics and dispute mechanism, since contingent payments are the leading source of post-closing litigation.
• The representations and warranties form the heart of the agreement: 25 to 40 seller statements covering organization, financial statements, tax compliance, title to assets, intellectual property ownership, and the absence of undisclosed litigation. Each is paired with a numbered disclosure schedule where the seller flags exceptions, and any inaccuracy becomes the buyer's basis for an indemnification claim.
• The indemnification section is the buyer's only real remedy after closing. It sets a cap (commonly 10 to 15 percent of price for general reps, uncapped for fundamental reps like title and taxes), a basket or deductible before claims trigger, and survival periods of roughly 12 to 36 months. An escrow holdback of 5 to 15 percent typically secures these obligations.
• The non-compete and non-solicitation covenant stops the seller from rebuilding the same business across the street or poaching the customers and staff you just bought. It is drafted to reasonable scope, geography, and duration so it survives judicial scrutiny in the governing-law state.
• The conditions to closing list everything that must be true before either side is forced to complete, including accuracy of the reps as of closing, delivery of consents, lien releases, and any required license transfers.

California treats post-sale restraints differently from most states. Business and Professions Code §16600 voids most non-competes, but §16601 carves out a clean exception for an owner who sells the goodwill of a business, which is exactly the situation a BPA covers. The covenant has to be tied to the goodwill sale and drafted within the statutory carve-out, or a California court will strike it. Buyers paying for customer relationships should treat this clause as load-bearing, not boilerplate, and confirm the selling owner holds enough equity to fall inside §16601.

New York enforces seller non-competes more readily than employee non-competes, applying a reasonableness test on duration, geography, and scope. New York also scrutinizes the bulk sales angle in asset deals involving inventory, and its tax authority can pursue a buyer for the seller's unpaid sales tax unless a bulk-sale notification is filed and a clearance received. Skipping that notice in New York can make the buyer personally liable for the seller's back taxes, a risk that has no equivalent in a stock deal.

Texas governs non-competes through Business and Commerce Code §15.50, which requires the covenant to be ancillary to an otherwise enforceable agreement, a standard a business sale satisfies cleanly. Texas courts will reform an overbroad covenant rather than void it, which gives sellers less leverage to escape a reasonable restriction. For entity-level deals, the partnership and entity buyout mechanics under the Texas Business Organizations Code should be checked against the company's own governing documents before transfer.

Delaware is the default choice for governing law even when neither party operates there, because its courts have the deepest body of M&A case law and predictable rules on sandbagging and indemnification. A Delaware-incorporated target sold by stock keeps its franchise tax and annual report obligations running through closing, and the buyer inherits them, so confirming the entity's good standing is a standard closing condition.

You start by selecting the deal structure, asset or stock, because that single choice reshapes the rest of the form. From there you identify the parties precisely, naming the seller's operating entity in an asset deal or the individual equity holders in a stock deal, since a misnamed party can derail enforcement later. You then enter the purchase price and choose the payment mechanics, whether that is all cash at closing, a seller note, an earnout, or a combination, and the template adjusts the security and escrow language accordingly.

Next you build the schedules. For an asset sale you list included and excluded assets and assumed liabilities; for a stock sale you confirm the equity being transferred and any retained rights. The form then walks you through the representations and warranties and prompts you to attach disclosure schedules wherever the seller needs to flag an exception. You set the indemnification terms, the cap, basket, and survival period, and the non-compete scope, geography, and duration, with the governing-law selector tightening those provisions to your chosen state. A complementary non-compete agreement drafted to state-specific statutes is available if you need a standalone restraint. Once every field is complete, you download editable Word and signature-ready PDF versions to circulate for negotiation and execution.

The most expensive error is treating structure as an afterthought. Buyers who accept a stock sale to close faster sometimes inherit a lawsuit or a tax liability that an asset sale would have left behind, and by then the indemnification cap is the only backstop. Closely related is vague asset description: a schedule that says "all equipment" invites a fight over whether a specific machine, software license, or domain name was actually included, and those disputes routinely run into six figures. The fix is a line-item schedule, not a category. A second recurring failure is ignoring third-party consents. A stock sale may leave contracts in place, but a change-of-control clause in a key customer or landlord agreement can terminate the very relationship the buyer is paying for, so consents are confirmed before closing, never assumed.

The other cluster of mistakes lives in the risk-allocation clauses people copy without reading. Sellers narrow their reps with "to the best of our knowledge" qualifiers that quietly shrink the buyer's recovery rights, and buyers who do not push back lose protection they paid for. Skipping bulk-sales notice in states that still require it can saddle a buyer with the seller's creditor and tax claims. And on asset deals, parties who never agree on the Section 1060 allocation file mismatched Form 8594 statements, which the IRS flags automatically and both sides end up explaining under audit. The disclosure schedules deserve the same care as the contract body, because an undisclosed liability that should have been scheduled becomes an indemnification claim the moment it surfaces.