OnwardLearn · Selling · Step 9. Prepare to close
The purchase agreement, including your non-compete
The short version
- The purchase agreement is the final, binding contract for the sale. It replaces the [letter of intent](/learn/reference#letter-of-intent "The offer document. It sets out the price, the structure and the main terms, and starts diligence.").
- It sets the price and terms, what you promise about the business and what happens if a promise turns out wrong.
- Your non-compete is part of it: how long, how far and in what kind of work you agree not to compete.
- Your M&A attorney negotiates it. This is where their experience matters most.
- Read the parts that affect you after closing especially carefully.
What the purchase agreement covers
- Price and payment: cash at closing, any note and any money held back.
- What is being sold, and what is not.
- Representations and warranties: the formal statements you make about the business, such as that your financial statements are accurate and there are no undisclosed lawsuits.
- Disclosure schedules: the lists of exceptions to those statements. Lesson 6.4 covers why they protect you.
- Indemnification: what you owe the buyer after closing if one of your statements turns out wrong, and the limits on it.
- Conditions to closing: what has to happen first, such as the buyer's loan approval and any required consents.
- Your non-compete and related promises.
- Your role after closing, often in a separate consulting or employment agreement.
Limits that protect you
Your attorney will negotiate limits on what you could owe after closing. Common ones include:
- A cap: the most you could owe.
- A threshold: small claims below a set amount are not paid.
- A time limit: how long the buyer has to bring a claim.
Your non-compete
The buyer is paying for your customers and goodwill. A non-compete protects that by limiting you from starting or joining a competing business for a period after the sale.
It usually defines:
- How long. A number of years.
- How far. A geographic area.
- What work. The kinds of business covered.
- Non-solicitation. Not taking customers or employees from the business.
Non-competes tied to the sale of a business are generally enforced when they are reasonable in length, area and scope. State law varies. Make sure the terms fit what you actually plan to do next.
Earlier lessons that feed into it
Consents for your lease, contracts and licenses are covered in Lesson 5.6. Your team of advisors, and why an M&A attorney matters here, is covered in Step 1, Build your team.
Take this to your own people
The questions for this topic, for your attorney, your accountant or your lender.
- For your M&A attorney: "What is the most I could owe the buyer after closing, and for how long?" Listen for: the cap, the threshold and the time limit, each in plain terms.
- For your M&A attorney: "Does my non-compete fit what I plan to do after the sale?" Listen for: questions about your plans, and whether the terms can be narrowed.
- For your accountant: "Is any part of the price allocated to the non-compete, and how would that be taxed?" Listen for: the tax treatment, and whether the allocation can be negotiated.
This names the question. Your CPA, your M&A attorney and your lender answer it for your situation.
When you’re ready
How a sale actually happens, in plain language — before you decide anything. Make a free account — nothing is shared