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Entity Purchase and Sale Agreement

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Checklist – Buy/Sell Agreements – Contingencies

I. Basic types of buy-sell agreements

A. Entity purchase,

B. Cross purchase,

C. Wait and see purchase.

II. Entity purchase or redemption buy-sell agreement

A. Business itself buys separate life insurance policies on the lives of each of the co-owners.

B. Business usually pays the annual premiums and is the owner and beneficiary of the policies.

III. Cross purchase buy-sell agreement

A. Each co-owner buys a life insurance policy on each of the other co-owners.

B. Each co-owner pays the annual premiums on the policies they own and are the beneficiaries of the policies.

IV. Wait and see buy-sell agreement

A. Combines features from both the entity purchase and cross purchase models.

B. Business can buy policies on each co-owner, the individual co-owners can buy policies on each other, or a mixture of both methods can be used.

V. Applicability

A. Should the agreement apply only to the current owners or should be binding on all owners throughout the life of the business entity.

B. Should the agreement provide that it supersedes all other agreements to redeem a business interest?

C. Is the agreement being reviewed annually? (Changes of price or terms should require a unanimous vote of the owners.)

VI. Type of Agreement

A. Should the agreement be structured as a redemption agreement or as a cross-purchase agreement?

B. Should the agreement be structured:

1. To require the seller to sell and the buyer to buy?

2. To give the buyer an option to require the seller to sell?

3. To give the seller an option to require the buyer to buy?

4. To give a right of first refusal to the buyer?

5. Should the death of an owner cause an automatic buyout of the owners interest or should his family be allowed to remain as an owner?

VII. Buyout Price and Time for Payout

A. Should the buyout price from the estate or heirs of a deceased owner be addressed?

1. If yes, when should be paid?

2. What interest rate should the obligation bear?

B. Should the buyout price to a disabled owner be addressed? If yes, when would be paid?

Payment timing:

C. Should the buyout price to an owner who resigns or is dismissed be addressed? If yes, when should be paid?

Payment timing:

D. Should there be a difference in price if there an amiable parting of ways? If yes, when should be paid?

Payment timing:

E. Should the buyout price to an owner who goes bankrupt be addressed? If yes, when should it be paid?

Payment timing:

F. Should the price reflect the fact that you are selling to a long time business associate rather than an outsider?

G. Should the agreement provide that the buyout be funded by life insurance or some other investment vehicle?

H. If funded with life insurance, should the type of life insurance used be addressed (i.e. term life, ordinary life, last to die, paid-up life, universal or an endowment policy?)

Type of insurance:

I. Should a life insurance trust be used?

J. Should all of the policy proceeds be required to be used to redeem the interest?

K. Can part of the proceeds be used to help the entity recover from the loss of the owner?

L. Should whole life insurance policies with cash values be transferred to the owner at termination or retirement?

VIII. Security

A. Should the agreement be guaranteed or secured?

B. If so, should the security be in the form of:

1. A pledge of business assets?

2. A personal guarantee by the other owners?

3. An agreement obligating the entity to refrain from increasing salaries, paying dividends or making loans until all outstanding liabilities to the beneficiaries are paid?

C. Should the disposition of owners’ loans, whether receivables or payables, in the event of termination because of death or disability be addressed?

D. Should the disposition of owners’ cans in the event of termination other than because of death or disability be addressed?

IX. Covenant Not to Compete

A. Should there be a covenant not to compete?

B. If so, should there be geographic and time limitations?

X. Other

A. Should there be a period of disability before the other owners of the business have the right to buy out a disabled owner?

B. Should an owner have the right to transfer or assign to a trust, for estate-tax planning purposes, their rights and interests in the business?

C. Should the spouses of the owners sign the buy/sell agreement?

D. Do other family members presently own any stock?

Signature

Date

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What an Entity Purchase and Sale Agreement Is and When It's Used

An Entity Purchase and Sale Agreement is a legally binding contract that documents the sale of a business entity or its equity/assets between a buyer and a seller. It allocates purchase price, describes what is transferred (equity, assets, liabilities), sets closing conditions, allocates risk through representations and warranties, and defines post-closing obligations such as covenants, indemnities, and escrow arrangements. Parties commonly use this agreement to manage tax consequences, transfer licenses or contracts, and provide seller protections during the post-closing adjustment period. Properly executed, it becomes the primary record of the transaction's legal and financial terms.

Why a Clear Agreement Matters for Buyers and Sellers

A precise Entity Purchase and Sale Agreement reduces ambiguity about transferred assets, purchase price mechanics, and post-closing liabilities. It protects buyer and seller expectations and supports enforceability under federal and state e-signature laws, including the ESIGN Act (15 U.S.C. ch. 96) and UETA (1999) where adopted.

Why a Clear Agreement Matters for Buyers and Sellers

Who Typically Uses an Entity Purchase and Sale Agreement

Buyers, sellers, and their advisors rely on this agreement to record terms, allocate risk, and trigger closing actions.

  • Strategic buyers and investors who need precise asset or equity transfer terms and post-closing remediation plans.
  • Business owners and sellers who must document price, escrow provisions, and continuing obligations to limit future liability.
  • Legal, tax, and finance teams that require negotiated representations, schedules, and clear closing checklists for integration.

Use the agreement with supporting schedules and exhibits to ensure obligations are clear and to facilitate closing logistics and any regulatory filings.

Core Sections Every Professional Entity Purchase and Sale Agreement Should Include

A complete agreement organizes risk and performance through discrete, standard sections that counsel and financial teams expect to find.

Purchase Price

Defines total consideration, payment structure, escrow holdback, and post-closing adjustment mechanics tied to working capital or net debt.

Assets vs Equity

Specifies whether the transaction transfers specified assets or equity interests and lists excluded assets and liabilities in schedules.

Representations & Warranties

Seller and buyer promises about authority, financial statements, contracts, taxes, compliance, and title to assets; survival periods noted.

Closing Conditions

Conditions precedent for each party, required approvals, third-party consents, and delivery items to clear before closing occurs.

Indemnification

Scope of indemnity obligations, caps, baskets, procedures for claims, and escrow or insurance remedies for post-closing liabilities.

Post-Closing Covenants

Noncompete, transition services, employee retention, and assignment of contracts with timelines and enforcement provisions.

Step-by-Step: Preparing and Executing the Agreement

Follow these steps to draft, negotiate, and close an entity sale with clear responsibilities and timing.

  • 01
    Draft Agreement: Prepare initial draft with schedules and exhibits attached.
  • 02
    Negotiate Terms: Exchange redlines, resolve price, reps, and indemnity language.
  • 03
    Complete Due Diligence: Buyer verifies financials, contracts, and regulatory compliance.
  • 04
    Close Transaction: Exchange documents, funds, and certificates on the closing date.

Configuring an Online Workflow to Complete the Agreement

Set up a digital workflow that enforces signing order, collects attachments, and preserves an audit trail.

Field Configuration
Signature Order Specify buyer then seller or conditional routing.
Authentication Use email + SMS code or stronger KBA if required.
Attachments Require corporate resolutions and closing certificates.
Audit Trail Enable full IP, timestamp, and action logging.

Digital Closing Workflow at a Glance

A straightforward digital workflow reduces friction and preserves evidence of execution.

  • Upload Document: Add final agreement and all exhibits to the platform.
  • Place Fields: Insert signature, date, and initial fields for each signer.
  • Send to Signers: Route in the agreed order with authentication enabled.
  • Store Evidence: Capture certificate of completion and signed PDF copy.

Technical Considerations for eSigning and Recordkeeping

Ensure your eSignature platform supports required authentication, audit trails, integrations, and retention policies for complex transactions.

  • Integrations: Salesforce, NetSuite, Microsoft 365 support
  • File Formats: PDF, DOCX, and export to archival formats
  • Authentication: Email, SMS, and advanced options

Verify the platform preserves tamper-evident signed PDFs and provides long-term access controls to meet audit and regulatory needs.

Security and Compliance Features to Verify

Encryption: TLS 1.2/1.3 in transit; AES-256 at rest
Audit Trail: Detailed timestamps, IP addresses, action logs
SOC 2: SOC 2 Type II report available
HIPAA: HIPAA-compliant with BAA available
21 CFR Part 11: Supports FDA-regulated electronic records
ESIGN / UETA: Compliant with ESIGN Act and UETA

Common Preparation and Execution Mistakes to Avoid

  • Using vague descriptions for transferred assets instead of attaching a detailed asset schedule creates disputes and delays closing.
  • Failing to attach required exhibits and corporate approvals often prevents escrow release or delays funding on the closing date.
  • Not confirming authorized signatory authority or corporate resolutions can render a signature challengeable and complicate title transfer.
  • Skipping clear post-closing adjustment formulas for working capital frequently leads to contested audits and arbitration claims after closing.

Key Legal and Financial Risks from Errors or Omissions

Tax Penalties: Incorrect reporting risks IRS penalties under IRC §6721.
Contract Liability: Ambiguous reps can trigger indemnity claims.
Title Defects: Unclear transfer may cause legal disputes.
Regulatory Fines: Noncompliance with sector laws invites sanctions.
Notarial Errors: Improper notarization can void acknowledgements.
Escrow Disputes: Poorly drafted escrow terms lead to litigation.

Typical Deadlines and Timing Expectations

Timelines vary by deal complexity; set explicit dates for diligence, funding, and post-closing actions to limit disputes.

Due Diligence Period:

Customarily 30–60 days depending on scope.

Closing Date:

Specified date when documents and funds are exchanged.

Post-Closing Adjustments:

Schedule audits and adjustment calculations within agreed period.

Regulatory Filings:

File state or federal notices by statutory deadlines.

Retention Requirements:

Preserve records per legal and tax obligations.

Key Transaction Milestones From Signing Through Integration

A sequential milestone view clarifies responsibilities from negotiation to post-closing integration.

01

Negotiation and Signing

Agree terms, finalize schedules, and sign the definitive agreement.

02

Due Diligence Completion

Buyer completes confirmatory audits and third-party consent collection.

03

Closing and Exchange

Deliverables occur, funds transfer, and title or equity changes hands.

04

Post-Closing Integration

Implement covenants, complete adjustments, and resolve indemnity claims.

Real-World Experiences and User Perspectives

Organizations often rely on eSignature and digital workflows to complete complex agreements and preserve compliance evidence.

Optica Ventures LLC

The interface is simple and easy-to-use for our team; more importantly, it is just as easy for our customers.

  • Operational simplicity accelerated our contract turnaround.
  • That ease of use supported faster review cycles and helped the team finalize transaction documents without repeated in-person meetings.

Martin Properties

I can process and execute all of these documents online with 100% compliance and built-in security.

  • Mobile and offline signing preserved momentum on deals.
  • Using a secure digital workflow allowed the firm to close and record documents more efficiently while maintaining compliance evidence.

Practical Tips for Accurate and Efficient Completion

Adopt standard practices to reduce delays, limit disputes, and ensure records are acceptable to auditors and regulators.

Define Transferred Items Precisely
Attach detailed schedules for assets, contracts, and excluded liabilities to eliminate ambiguity and reduce indemnity disputes after closing.
Confirm Signing Authority
Collect corporate resolutions or LLC consent evidence to prove signatory authority and prevent post-closing challenges.
Use Escrow and Holdbacks
Structure escrows and payment holdbacks to cover indemnity exposure and agree on claim procedures and timelines in advance.
Coordinate Tax and Regulatory Filings
Engage tax counsel to optimize purchase structure and ensure timely filing of required notices and tax forms.

eSignature Vendor Pricing and Feature Snapshot

Compare representative starting prices and common enterprise features for workflow planning. signNow is listed first per vendor comparison conventions.

signNow DocuSign Adobe Sign PandaDoc HelloSign
Starting Price $8/user/mo $15/user/mo $14/user/mo $19/user/mo $15/user/mo
Free Trial 7-day free trial Varies by plan Varies by plan Varies by plan Varies by plan
Bulk Send Yes (Business Premium) Yes Yes Yes No
Audit Trail Yes Yes Yes Yes Yes
HIPAA Compliant Yes Yes Yes No No

Frequently Asked Questions About Execution, Validity, and Corrections

Practical answers to common questions about enforceability, notarization, corrections, and signer authority when using an Entity Purchase and Sale Agreement.


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