Asset Purchase Agreement vs Share Purchase Agreement: Which Structure Protects You Best?

A share purchase agreement (SPA), also called a stock purchase agreement, is a legal contract where you buy the equity ownership of an existing company. Instead of purchasing individual assets, you're acquiring the shares (or membership interests in an LLC) that represent ownership of the entire legal entity.

When you complete a share purchase, you step into the shoes of the previous owner. The company continues to exist as the same legal entity — same employer identification number (EIN), same contracts, same bank accounts, same everything. You've simply replaced the shareholders listed on the company's cap table.

According to RSM US LLP, approximately 30-40% of private company acquisitions under $50 million are structured as share purchases, with the remainder being asset purchases. The choice between these structures has profound implications for liability, taxes, and transaction complexity.

What transfers in a share purchase:

• All assets owned by the company (equipment, inventory, intellectual property, real estate, etc.)
• All liabilities, both known and unknown (debt, legal claims, tax obligations, warranty claims, environmental issues)
• All contracts and agreements (customer contracts, supplier agreements, leases, employee agreements)
• All licenses and permits (though some may require regulatory approval for change of ownership)
• The company's complete operating history and legal identity

The fundamental characteristic of a share purchase is continuity. From the outside world's perspective, nothing has changed — the company continues operating under the same legal structure with the same obligations and rights. Only the ownership has changed hands.

This continuity creates both advantages and risks. On the positive side, you don't need to transfer individual assets, notify every customer, or renegotiate contracts. On the risk side, you inherit every liability the company has accumulated, whether you know about it or not.

Share purchases are particularly common in acquisitions of:

• Professional service firms where personal relationships and licenses matter
• Companies with valuable contracts that have change-of-control provisions
• Businesses with difficult-to-transfer licenses (liquor licenses, medical licenses, specialized permits)
• Entities where transferring individual assets would be prohibitively complex

In a typical transaction, the seller provides representations and warranties about the company's condition, and you conduct thorough due diligence to verify these claims. The SPA includes provisions for indemnification if undisclosed liabilities surface after closing, though enforcing these provisions can be challenging if the seller has already spent the proceeds.

An asset purchase agreement (APA) is a legal contract where you selectively purchase specific assets and assume specific liabilities from a business, while the selling entity itself continues to exist. Rather than buying the company's shares, you're cherry-picking what you want and leaving behind what you don't.

Think of an asset purchase as buying the contents of a store rather than buying the store building itself. You might purchase the inventory, equipment, customer lists, brand name, and lease, but leave behind the old company's debts, pending lawsuits, and tax liabilities.

The U.S. Small Business Administration reports that approximately 60-70% of acquisitions involving SBA 7(a) loans are structured as asset purchases because this structure provides cleaner liability protection for the buyer. The seller's legal entity remains intact after the sale — it simply no longer owns the operating assets.

What typically transfers in an asset purchase:

• Tangible assets: equipment, machinery, vehicles, inventory, furniture, fixtures
• Intangible assets: brand names, trademarks, customer lists, proprietary processes, goodwill
• Real property: owned real estate (though this often involves a separate real estate transaction)
• Contracts: those you specifically assume (often requires consent from counterparties)
• Intellectual property: patents, copyrights, trade secrets, domain names

What typically does NOT transfer (unless specifically assumed):

• Corporate liabilities: lawsuits, claims, judgments against the seller
• Tax obligations: back taxes, payroll tax liabilities, sales tax issues
• Debt: bank loans, lines of credit, bonds (seller pays these off at closing)
• Employee liabilities: accrued vacation, pension obligations, workers' comp claims from pre-closing incidents
• Environmental liabilities: contamination or violations from previous operations

The asset purchase structure requires explicit transfer of each asset. If the business owns real estate, you need a deed. If it has vehicles, you need titles transferred. If it has contracts, you often need consent from the other parties. This creates more transaction complexity but substantially more protection.

According to Deloitte's 2024 M&A Trends Report, asset purchases typically take 15-25% longer to close than share purchases due to the need to transfer individual assets and obtain third-party consents. However, this extra time is often worthwhile for the liability protection it provides.

After an asset purchase closes, you typically operate the business through your own legal entity — either a new company you've formed or an existing company you own. The seller's original company remains in existence (at least temporarily) to handle any remaining obligations, tax filings, or wind-down activities.

Key characteristic: In an asset purchase, you're starting fresh from a legal liability perspective. You only assume the liabilities you explicitly agree to assume in the purchase agreement. Any hidden liabilities generally remain with the seller's original entity.

The choice between an asset purchase and a share purchase affects every aspect of your transaction — from liability exposure to tax bills to how long closing takes. Here are the critical differences you need to understand:

Liability Exposure: This is the single most important difference. In an asset purchase, you're largely protected from the seller's historical liabilities. If the company is sued three years after closing for something that happened before you bought it, that's generally the seller's problem, not yours. In a share purchase, it becomes your problem because you own the entity that caused the issue.

According to a study by the American Bar Association, approximately 23% of business acquisitions result in post-closing disputes, with liability issues being the most common source of conflict. Asset purchases provide a cleaner break.

Tax Implications: Asset purchases allow you to "step up" the tax basis of acquired assets to their purchase price, which means you can depreciate equipment, amortize goodwill, and reduce future tax bills. This benefit can be worth 15-25% of the purchase price in present value terms, according to PwC's Deals Insights analysis.

However, sellers of C-corporations face potential double taxation in asset sales — the corporation pays tax on the gain when assets are sold, then shareholders pay tax again when the proceeds are distributed. This is why sellers push hard for share purchases.

Transaction Complexity: Asset purchases require you to specifically transfer each asset. You need bills of sale for equipment, assignments of contracts, assignments of intellectual property, deeds for real estate, and title transfers for vehicles. Each transfer has its own documentation requirements and potential complications.

Share purchases are mechanically simpler — you're just transferring ownership interests in a legal entity. The company's cap table changes, but all the assets remain where they are, titled to the same entity.

Third-Party Consents: Many contracts include change-of-control provisions that require consent if the business is sold. In an asset purchase, you're technically forming new contracts, so consent is almost always required. In a share purchase, the company (the contracting party) hasn't changed, so consent requirements may not be triggered — though sophisticated contracts often include share purchase provisions too.

For businesses with critical contracts (major customer agreements, franchise agreements, key supplier relationships), obtaining these consents can make or break the deal. Sometimes a required consent won't be granted, forcing you into a share purchase structure.

The Negotiation Dynamic: Most acquisition negotiations involve compromise on structure. You (the buyer) want an asset purchase for liability protection. The seller wants a share purchase for tax efficiency. The final structure often depends on relative negotiating leverage and creative problem-solving around indemnification, escrow, and price adjustments.

The choice between asset and share purchase isn't arbitrary — specific characteristics of the business and deal make one structure clearly preferable. Here's when to use each approach:

When an Asset Purchase Makes Sense:

• The business has significant liability exposure: Companies in industries with high litigation risk (healthcare, construction, manufacturing, transportation) or businesses with known environmental issues, product liability concerns, or pending litigation.
• You're using SBA financing: The SBA strongly prefers asset purchases because they protect both you and the taxpayer-backed loan guarantee. While SBA loans can technically be used for share purchases, asset purchases are standard and face less scrutiny.
• The seller is a C-corporation with low basis: If the seller faces double taxation anyway, you have more negotiating leverage to insist on an asset structure that benefits you.
• The business has easily transferable assets: Service businesses, retail stores, restaurants, and small manufacturers where assets can be listed and transferred without excessive complexity.
• There are unfavorable contracts you want to leave behind: If the business has above-market leases, unfavorable supplier agreements, or problematic employee contracts, an asset purchase lets you potentially avoid these (subject to assignment provisions).
• Tax benefits justify the complexity: When the step-up in basis will generate significant tax savings that offset the higher transaction costs and complexity of transferring individual assets.

"In 15 years of representing business buyers, I've seen asset purchases provide critical protection in roughly 1 out of 4 deals where unexpected liabilities surfaced post-closing — liabilities that would have devastated buyers in a stock sale." — Jennifer Morrison, M&A Attorney, Morrison & Partners LLP

When a Share Purchase Makes Sense:

• Contracts are difficult or impossible to assign: Key customer contracts, franchise agreements, government contracts, or exclusive distribution agreements that can't be transferred without risking the business.
• Licenses and permits are hard to transfer: Liquor licenses, medical practice licenses, cannabis licenses, certain federal contracts, or industry-specific permits where re-application would be difficult, expensive, or uncertain.
• The business is an S-corporation or LLC: Pass-through entities don't face double taxation on asset sales, reducing the seller's tax advantage from a share structure. However, sellers still prefer share sales for the certainty of capital gains treatment.
• The seller has significant leverage: When you're competing against other buyers, the seller may simply refuse to consider an asset purchase. If you want the business, you accept their terms.
• Transaction speed is critical: If you need to close quickly (competitive situation, time-sensitive opportunity, financing deadline), a share purchase eliminates weeks of asset transfer work.
• Due diligence reveals clean operations: After thorough investigation, if you're confident there are no hidden liabilities and the business has been well-managed with good compliance, the liability risk is lower.
• Strong indemnification provisions offset risk: If you can negotiate substantial escrow holdbacks (20-30% of purchase price) and long indemnification periods (3-5 years), you can protect yourself even in a share purchase.
• The business is a holding company or has subsidiaries: Complex corporate structures where transferring individual assets from multiple entities would be prohibitively complicated.

According to data from IBIS World, here's how acquisition structures typically break down by industry:

The Hybrid Approach: Sometimes you can achieve the benefits of both structures through creative deal making. For example, you might acquire certain assets (equipment, inventory) while having the seller assign key contracts to you outside the formal asset purchase. Or you might do a share purchase with specific liabilities carved out and retained by the seller.

These hybrid structures require sophisticated legal drafting but can provide optimal outcomes when standard structures don't fit the situation.

Bottom Line: If you have a choice, default to an asset purchase for the liability protection. Only accept a share purchase when specific business characteristics make it necessary or when the seller's negotiating position forces the issue. And when you do a share purchase, invest heavily in due diligence and indemnification provisions to protect yourself.

The tax consequences of asset versus share purchases can swing the economics of a deal by hundreds of thousands of dollars. Understanding these implications helps you negotiate price adjustments and structure deals that work for both parties.

Tax Impact for Buyers:

In an asset purchase, you get to "step up" the tax basis of acquired assets to their purchase price. This means if you pay $2 million for a business, you can allocate that $2 million across the assets you've acquired and depreciate/amortize them according to IRS schedules.

The IRS requires you to allocate the purchase price among seven asset classes using Form 8594:

1. Class I - Cash: No tax benefit (already at fair value)
2. Class II - Actively traded securities: Rare in small business deals
3. Class III - Accounts receivable: No additional benefit (ordinary income when collected)
4. Class IV - Inventory: Deducted when sold (near-term tax benefit)
5. Class V - Fixed assets: Depreciated over 3-39 years depending on asset type (significant long-term benefit)
6. Class VI - Intangibles (except goodwill): Customer lists, patents, non-competes amortized over 15 years
7. Class VII - Goodwill: Amortized over 15 years

According to tax analysis by Deloitte, the present value of tax benefits from a step-up in basis typically equals 15-25% of the purchase price, assuming a 35% combined federal and state tax rate and discount rate of 8%.

Example: You buy a business for $3 million in an asset purchase. After allocation, you might have $500,000 in fixed assets (depreciable over 5-7 years), $400,000 in customer lists and other intangibles (amortizable over 15 years), and $2.1 million in goodwill (amortizable over 15 years). This generates approximately $200,000 in annual deductions for 15 years, worth roughly $525,000 in present value at a 35% tax rate.

In a share purchase, you inherit the seller's tax basis in the company's assets. If the seller has fully depreciated equipment or old assets with low basis, you get no additional depreciation benefit even though you're paying fair market value for the business. This is a significant economic disadvantage.

You can potentially elect a 338(h)(10) election (for S-corps) or a 338 election (for C-corps) to treat a share purchase as an asset purchase for tax purposes, but this requires seller consent because it increases the seller's tax bill. Sellers typically demand a higher purchase price to agree to this election.

Tax Impact for Sellers:

For C-corporation sellers in an asset purchase, you face double taxation:

1. The corporation pays tax on the gain from selling assets (21% federal corporate rate plus state taxes)
2. When you distribute proceeds to shareholders, they pay tax on the distribution (up to 23.8% federal long-term capital gains rate plus state taxes)

This combined tax burden can reach 40-45% in high-tax states. On a $3 million sale, double taxation could mean $1.2-$1.35 million in taxes versus $800,000-$900,000 in a share purchase (where shareholders pay just capital gains).

For S-corporation and LLC sellers in an asset purchase, you avoid double taxation because these are pass-through entities. However, you may face higher taxes than in a share purchase because some of the gain may be taxed as ordinary income (particularly depreciation recapture) rather than capital gains.

In a share purchase, sellers of both C-corps and pass-through entities generally pay a single layer of tax at long-term capital gains rates (0%, 15%, or 20% federal depending on income, plus 3.8% net investment income tax for high earners, plus state taxes). This is typically 23.8% federal + state for high-income sellers.

According to the Tax Foundation, approximately 73% of sellers prefer share purchases specifically due to the tax treatment, while approximately 84% of buyers prefer asset purchases for the step-up benefits — creating natural tension in negotiations.

Using Tax Differences to Negotiate Price:

The tax difference between structures creates an opportunity for creative deal making. If the seller faces $400,000 more in taxes from an asset purchase versus a share purchase, you might offer to increase the purchase price by $200,000 if they'll agree to an asset structure. This gives them $200,000 more net proceeds while giving you the liability protection and tax benefits you want.

Tools like our valuation calculator can help you model the after-tax economics of different structures and prices to find a win-win structure.

State and Local Tax Considerations:

Don't overlook state and local taxes in your analysis:

• Transfer taxes: Some states charge transfer taxes on real estate or business asset sales (can be 1-4% in high-tax jurisdictions)
• Sales tax: Asset purchases may trigger sales tax on tangible assets in some states (though business acquisition exemptions often apply)
• State income tax: Capital gains are taxed as ordinary income in most states, adding 3-13% to the seller's tax bill
• State NOLs: In a share purchase, the company's net operating losses carry forward; in an asset purchase, they're lost

The bottom line: Run detailed tax models for both structures using actual numbers from the target business and your specific tax situation. The tax tail shouldn't wag the dog, but tax implications should heavily influence your pricing and negotiating strategy. Consider engaging a tax advisor who specializes in M&A to optimize the structure.

Purchase agreements contain dozens of provisions that allocate risk between buyer and seller. Understanding these clauses helps you negotiate better terms and avoid expensive surprises. Here are the key provisions you'll encounter in both asset and share purchase agreements:

Purchase Price and Payment Terms:

The purchase price section specifies how much you're paying and when. This sounds simple but often includes complexity:

• Base purchase price: The primary amount you're paying for the business
• Working capital adjustment: Provision to true up the price based on actual working capital at closing (typically targets a normalized level based on historical averages)
• Earn-out provisions: Additional payments contingent on future performance (e.g., "Additional $500,000 if EBITDA exceeds $1.2M in Year 1")
• Seller financing terms: If the seller is financing part of the purchase, terms including interest rate, payment schedule, personal guarantee requirements, and default provisions
• Escrow or holdback: Portion of purchase price held in escrow for 12-36 months to secure seller's indemnification obligations (typically 10-20% of purchase price)

According to Pepperdine's Private Capital Markets Project, approximately 35% of business acquisitions under $10 million include some form of earn-out provision, with amounts typically representing 15-30% of total consideration.

Representations and Warranties:

These are statements of fact about the business that the seller promises are true. If they turn out to be false, you can claim indemnification. Common representations include:

• Organization and authority: The company is properly formed and the seller has authority to sell
• Financial statements: The provided financials fairly represent the company's condition
• Absence of undisclosed liabilities: There are no liabilities except those disclosed
• Compliance with laws: The business operates in compliance with applicable laws and regulations
• Contracts: All material contracts have been disclosed and are in good standing
• Intellectual property: The company owns or has rights to use all necessary IP
• Litigation: There are no pending or threatened lawsuits
• Taxes: All tax returns have been filed and taxes paid
• Employees: Employee relationships are as disclosed, no labor disputes
• Assets: The company owns the assets free of liens and encumbrances

In an asset purchase, representations and warranties about the assets themselves are critical. In a share purchase, you need broader representations about the entire company since you're inheriting everything.

Survival Period and Indemnification:

The survival period determines how long the seller remains liable for breaches of representations and warranties. Common approaches:

• Fundamental representations (organization, authority, taxes): Typically survive until the statute of limitations expires (3-6 years)
• General representations (most business matters): Typically survive 12-24 months
• Environmental and employee benefits: Often survive 3-5 years due to longer tail risks

Indemnification provisions specify:

• Caps: Maximum amount seller will pay (often equals purchase price, but can be limited to 25-50%)
• Baskets: Minimum amount of damages before indemnification kicks in (typically $10,000-$50,000 for deals under $5M)
• Tipping vs. deductible baskets: Tipping baskets mean once threshold is exceeded, you recover all damages; deductible baskets mean you only recover damages above the threshold

"The indemnification basket is where most buyers lose protection. I recommend deductible baskets no higher than 1% of purchase price and caps at least equal to the escrow amount." — Robert Chen, Partner, M&A Law Group

Material Adverse Change (MAC) Clause:

This provision allows you to walk away from the deal if something significantly negative happens to the business between signing and closing. MAC clauses typically exclude general economic conditions or industry-wide events and focus on company-specific problems.

A well-drafted MAC clause might define material adverse change as any event reducing EBITDA by more than 20% or eliminating a customer representing more than 15% of revenue.

Non-Compete and Non-Solicitation:

Sellers typically agree not to compete with the business for a period of time (usually 3-5 years) within a defined geography and not to solicit employees or customers.

The IRS allows you to amortize the value attributed to a non-compete agreement over its term, creating a tax deduction. Typical allocation is $100,000-$500,000 of the purchase price depending on competitive risk.

Closing Conditions:

These are requirements that must be met before the deal closes:

• Satisfactory completion of due diligence
• No material adverse change has occurred
• Regulatory approvals obtained (if required)
• Third-party consents received (landlords, lenders, key customers)
• Financing commitments remain in place
• Key employees have signed employment or transition agreements
• Seller has delivered all required closing documents

If closing conditions aren't met, either party can typically walk away without penalty.

Asset Purchase Specific Clauses:

Asset purchase agreements include additional provisions:

• Assumed liabilities schedule: Explicit list of which liabilities you're assuming (accounts payable, customer deposits, specific contracts)
• Excluded liabilities schedule: Liabilities that remain with seller (all debts, litigation, taxes, pre-closing employee matters)
• Bulk sales compliance: Provisions addressing state bulk sales laws (largely obsolete but still required in some states)
• Assignment provisions: Specific assets being assigned and transferred

Share Purchase Specific Clauses:

Share purchase agreements include:

• Disclosure schedules: Extensive schedules listing all known issues, liabilities, contracts, and exceptions to representations
• Bring-down certificate: Seller certifies at closing that all representations remain true
• Release provisions: Seller releases the company from any obligations to the seller personally
• Access to books and records: Your right to access pre-closing records for tax and legal purposes

Understanding these clauses empowers you to negotiate better terms. Don't accept boilerplate language without considering how each provision affects your risk profile and potential recovery if something goes wrong post-closing.

The purchase agreement negotiation is where deals are won or lost. While price matters, the terms of your purchase agreement determine whether you're actually protected if things go wrong. Here's how to negotiate effectively:

Understand Your Leverage Points:

Your negotiating strength comes from several sources:

• Multiple buyer competition: If you're the only serious buyer, you have more leverage to insist on favorable terms. If the seller is running an auction, they control the process.
• Financing certainty: Having pre-approved financing gives you credibility and leverage. Sellers often accept slightly lower prices from buyers with certain financing.
• Time pressure: Sellers who need to close quickly (retirement, health, partnership dissolution) are more willing to compromise on terms to ensure a deal happens.
• Due diligence findings: Problems discovered during diligence give you leverage to renegotiate price or terms. Document issues clearly and present them professionally.
• Deal structure flexibility: Being willing to accommodate the seller's preferences (timing, employment agreements, real estate leaseback) creates goodwill you can trade for better terms elsewhere.

Prioritize Your Non-Negotiables:

You can't win every point. Identify your must-haves versus nice-to-haves:

Must-haves for buyers:

• Strong indemnification provisions with meaningful survival periods
• Adequate escrow holdback (15-25% of purchase price for 18-24 months)
• Broad representations and warranties about financial condition, compliance, and absence of undisclosed liabilities
• Reasonable non-compete agreement protecting the business
• Working capital adjustment mechanism to ensure you're not buying depleted inventory or accounts receivable

Common trade-offs:

• Accept the seller's preferred deal structure (share vs. asset) in exchange for stronger indemnification
• Agree to faster closing timeline in exchange for lower price or better terms
• Accept smaller escrow if seller agrees to longer indemnification period
• Pay slightly higher price if seller agrees to asset purchase structure

According to the Association for Corporate Growth, approximately 67% of middle-market M&A deals involve meaningful renegotiation of price or terms after the letter of intent is signed but before final closing, usually based on due diligence findings.

Due Diligence as Negotiating Tool:

Thorough due diligence not only protects you but also gives you negotiating leverage. When you discover issues, address them strategically:

• Quantify the impact: Don't just say "there are compliance issues." Say "addressing these OSHA violations will cost approximately $75,000 based on three contractor quotes."
• Present professionally: Create a written summary of findings with supporting documentation. This shows you're serious and prepared.
• Propose solutions, not just problems: "We found X issue. We're willing to move forward if we can adjust the price by $Y or if you'll remediate before closing."
• Distinguish deal-breakers from adjustments: Major fraud or misrepresentation should end negotiations. Minor issues should result in price reductions or term adjustments.

Use our due diligence checklist to ensure you're uncovering issues that could give you renegotiation leverage before you're locked into final terms.

Master the Escrow Negotiation:

The escrow holdback is your primary protection against post-closing surprises. Negotiate these terms carefully:

• Amount: Push for 15-25% of purchase price. Sellers will try to limit it to 5-10%. Compromise around 15% is common.
• Duration: Seek 18-24 months minimum, longer for industries with tail risk (manufacturing, healthcare). Sellers want 12 months.
• Release provisions: Insist on specific claims being carved out of escrow release if they're pending when the holdback period ends.
• Interest: Clarify whether escrowed funds earn interest and who receives it (typically split or goes to seller).

Negotiate Representations Line by Line:

Don't accept the seller's initial draft of representations and warranties. Strengthen them:

Address Earn-Outs Carefully:

If the seller proposes an earn-out (additional payment based on future performance), negotiate protective terms:

• Clear metrics: Define exactly how performance is measured (revenue, EBITDA, customer retention, etc.) with unambiguous calculation methodology
• Control provisions: Clarify who controls business decisions during the earn-out period (you need operational control)
• Dispute resolution: Specify that earn-out calculations are certified by your accountant, with arbitration for disputes
• Caps and accelerators: Negotiate maximum earn-out amounts and potential early payment if targets are exceeded

According to SRS Acquiom's M&A Deal Terms Study, approximately 26% of earn-outs result in disputes, most commonly over calculation methodology and business decisions affecting performance metrics.

Use Counsel Strategically:

Your attorney is both a technical resource and a negotiating tool:

• Let lawyers negotiate lawyer issues: Have your attorney directly negotiate with seller's attorney on technical legal provisions (indemnification, survival, jurisdictional issues)
• Keep business negotiations business-to-business: Don't let attorneys negotiate price, structure, or key business terms directly — you should lead those conversations
• Use your attorney as "bad cop": You can maintain a collaborative relationship with the seller while your attorney takes hardline positions on protective terms
• Don't over-lawyer early stages: Excessive attorney involvement in initial discussions can signal distrust and increase costs unnecessarily

Document Everything:

Maintain detailed records throughout negotiations:

• Keep email chains showing evolution of positions
• Save all draft agreements with version dates
• Document verbal agreements in written follow-up emails
• Create negotiation summary memos after each major discussion

This documentation protects you if disputes arise about what was agreed to and provides a record if you need to enforce the agreement later.

Know When to Walk Away:

Sometimes the best negotiation tactic is being willing to walk away. Develop your BATNA (Best Alternative to Negotiated Agreement) before negotiations start. If the seller won't agree to reasonable protective terms, particularly in a share purchase, walking away may be wiser than accepting unlimited risk.

According to Harvard Business School research, buyers who are willing to walk away from 20-30% of potential deals based on unfavorable terms achieve better average returns on completed acquisitions than buyers who close every deal they pursue.

Use these comprehensive checklists to ensure you're covering all critical elements in your purchase agreement, whether you're structuring an asset or share purchase.

Asset Purchase Agreement Checklist:

Transaction Structure:

• ☐ Specific assets being purchased are listed on an exhibit (equipment, inventory, IP, contracts, etc.)
• ☐ Excluded assets are clearly identified (cash, seller's personal property, etc.)
• ☐ Assumed liabilities are explicitly scheduled (accounts payable, customer deposits, specified contracts)
• ☐ Excluded liabilities are confirmed (all debt, litigation, taxes, pre-closing obligations)
• ☐ Purchase price allocation among asset classes is specified for tax purposes (Form 8594)

Purchase Price and Payment:

• ☐ Base purchase price is stated clearly
• ☐ Allocation of purchase price to non-compete agreement is specified (if applicable)
• ☐ Working capital target and adjustment mechanism is defined
• ☐ Payment schedule is documented (amount at closing, deferred payments, earn-outs)
• ☐ Escrow amount (15-25% recommended), duration (18-24 months), and release terms are specified
• ☐ Seller financing terms are complete (if applicable): principal, interest rate, term, payment schedule, security interest, default provisions

Assets and Liabilities:

• ☐ Equipment list with descriptions and serial numbers is attached
• ☐ Inventory valuation methodology is specified (at cost, not to exceed $X)
• ☐ Real estate details (if included) with legal description
• ☐ Intellectual property assignments are listed (trademarks, patents, copyrights, domain names)
• ☐ Contract assignment schedule with consent requirements noted
• ☐ Customer lists and databases are identified
• ☐ Accounts receivable handling is addressed (seller retains vs. buyer assumes)

Seller Representations and Warranties:

• ☐ Organization and authority to sell
• ☐ Ownership of assets free and clear of liens
• ☐ Financial statements are accurate and complete
• ☐ No undisclosed liabilities
• ☐ Compliance with all laws and regulations
• ☐ No pending or threatened litigation
• ☐ All taxes have been paid or disclosed
• ☐ Contracts are in good standing and disclosed
• ☐ Environmental compliance (no contamination, all permits current)
• ☐ Intellectual property ownership or license rights
• ☐ Employee matters (no disputes, all obligations disclosed)
• ☐ Insurance coverage is as disclosed and claims history provided

Closing Conditions:

• ☐ Satisfactory completion of due diligence
• ☐ No material adverse change
• ☐ Third-party consents obtained (landlord, key suppliers, major customers if required)
• ☐ Financing commitment remains in place
• ☐ Necessary governmental approvals received
• ☐ Title insurance obtained (if real estate included)
• ☐ UCC lien searches showing no encumbrances

Indemnification and Risk Allocation:

• ☐ Survival periods specified (fundamental reps: 3-6 years; general reps: 18-24 months)
• ☐ Indemnification cap defined (typically 100% of purchase price for fundamental breaches; 25-50% for general)
• ☐ Basket amount set ($10K-$50K for deals under $5M)
• ☐ Type of basket specified (deductible vs. tipping)
• ☐ Claims process and notice requirements detailed
• ☐ Indemnification exclusive remedy (or exceptions noted)

Post-Closing Obligations:

• ☐ Seller's transition assistance commitments (duration and compensation)
• ☐ Non-compete terms (duration: 3-5 years, geographic scope, scope of restricted activities)
• ☐ Non-solicitation of employees and customers (typically 2-3 years)
• ☐ Seller's cooperation with asset transfers and filings
• ☐ Access to pre-closing books and records

Miscellaneous Provisions:

• ☐ Confidentiality obligations
• ☐ Governing law (typically buyer's state)
• ☐ Dispute resolution mechanism (litigation, arbitration, mediation)
• ☐ Attorney's fees provision (prevailing party recovers)
• ☐ Assignment restrictions
• ☐ Entire agreement clause
• ☐ Amendment requirements (written consent of both parties)

Share Purchase Agreement Checklist:

Transaction Structure:

• ☐ Number and type of shares/interests being purchased
• ☐ Percentage of company being acquired (typically 100%)
• ☐ Outstanding shares/interests confirmed (no hidden equity grants or options)
• ☐ Corporate structure verified (subsidiaries, divisions, related entities)
• ☐ Treatment of any outstanding options, warrants, or other equity claims

Purchase Price and Payment:

• ☐ Base purchase price for equity
• ☐ Working capital target and adjustment mechanism
• ☐ Treatment of company cash (typically stays with company/reduces price)
• ☐ Treatment of company debt (typically paid off at closing from proceeds or assumed)
• ☐ Escrow amount and terms (15-25% for 18-24 months recommended)
• ☐ Earn-out provisions (if applicable) with clear calculation methodology

Company Representations and Warranties (More Extensive than Asset Purchase):

• ☐ Organization, qualification, and corporate power
• ☐ Capitalization (all outstanding equity fully disclosed, no hidden agreements)
• ☐ Subsidiaries and equity investments disclosed
• ☐ Financial statements fairly present condition in accordance with GAAP
• ☐ No undisclosed liabilities (including contingent liabilities)
• ☐ All assets owned or leased are disclosed
• ☐ Title to assets (owned free and clear of liens except as disclosed)
• ☐ All material contracts disclosed and in good standing
• ☐ Compliance with laws and regulations
• ☐ Litigation (none pending or threatened)
• ☐ Tax compliance (all returns filed, all taxes paid, no audits or disputes)
• ☐ Employee matters (all agreements disclosed, no disputes, proper classification)
• ☐ Employee benefits plans fully funded and compliant (ERISA compliance)
• ☐ Environmental compliance and no contamination
• ☐ Intellectual property ownership and no infringement
• ☐ Insurance coverage is adequate and claims history disclosed
• ☐ Permits and licenses current and transferable (or not requiring transfer)
• ☐ Related party transactions disclosed
• ☐ Bank accounts, safe deposit boxes, powers of attorney disclosed

Closing Conditions:

• ☐ Due diligence satisfactory
• ☐ No material adverse change
• ☐ Key employee retention agreements signed
• ☐ Resignations of existing directors/officers (if required)
• ☐ Payoff letters for all company debt
• ☐ Required regulatory approvals (if any)
• ☐ Third-party consents for contracts with change-of-control provisions
• ☐ Updated certificate from Secretary of State showing good standing
• ☐ Corporate resolutions authorizing the sale

Closing Deliverables:

• ☐ Stock certificates or LLC membership interest assignments
• ☐ Corporate records (minute books, bylaws, stock ledgers)
• ☐ Bring-down certificate (reps and warranties still true as of closing)
• ☐ Secretary's certificate
• ☐ Legal opinions (if required)
• ☐ Resignations of directors/officers
• ☐ Release of seller claims against the company
• ☐ Payoff letters and UCC-3 termination statements

Indemnification (Especially Critical in Share Purchase):

• ☐ Survival periods for different categories of representations
• ☐ Indemnification caps by category
• ☐ Basket or deductible amount
• ☐ Special provisions for tax indemnification (often with longer survival)
• ☐ Environmental indemnification (often with extended survival)
• ☐ Claims process detailed
• ☐ Limitations on indemnification (knowledge qualifiers, etc.)

Special Share Purchase Provisions:

• ☐ Tax treatment elections (338(h)(10) if applicable)
• ☐ Seller's access to pre-closing tax records
• ☐ Tax allocation responsibilities post-closing
• ☐ Treatment of any tax refunds or assessments from pre-closing periods
• ☐ Seller's release of claims against the company
• ☐ Restrictive covenant by seller (non-compete, non-solicit)

These checklists ensure you're covering critical legal and business issues regardless of which purchase structure you choose. Work through them systematically with your attorney and don't check off items without actually verifying they're properly addressed in your agreement.