Definitive purchase agreement
A definitive purchase agreement is the binding contract that governs a business sale, replacing the earlier non-binding letter of intent. It sets out the final price, structure, representations and warranties, closing conditions, and what happens after closing, and it is the document both parties actually sign to complete the transaction.
Early in a deal, a buyer and seller usually sign a letter of intent that sketches out the main terms but is largely non-binding. As due diligence wraps up and both sides are confident in the deal, that letter is replaced by the definitive purchase agreement, sometimes called a share purchase agreement or asset purchase agreement depending on the deal structure.
What it covers
The definitive agreement is the most detailed document in the transaction. It fixes the purchase price and any adjustment mechanism, lists the representations and warranties each side is making, sets the closing conditions that must be met, and describes remedies if something turns out to be wrong after closing, such as indemnity and holdback provisions.
Why the details matter
Because this is the document courts look to if a dispute arises, vague or missing terms can leave a party exposed. Whether the deal is structured as a share sale or an asset sale changes what needs to be included, and Canadian tax treatment can differ significantly between the two structures.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryBuying & Selling a Business
- 02Treadstone LawLegal commentaryConditions Precedent to Closing in an Ontario Business Sale Agreement
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