What is Definitive Agreement?
The Short Answer
Definitive Agreement explained simply
The Definitive Agreement (DA) is the most important document in a business sale. It’s the final contract that spells out every detail of the deal. Think of it as the rulebook for how the business will change hands. It covers everything from the purchase price and payment terms to what happens if something goes wrong before closing. Both the buyer and seller sign it, making it a legally binding document.
Real-World Example
Selling a Coffee Shop
Imagine you’re selling your coffee shop. After some back and forth, you and the buyer agree on a price and general terms. The Definitive Agreement would then detail:
- Purchase Price: The exact amount the buyer will pay.
- Assets Included: What equipment, inventory, and recipes are part of the sale.
- Liabilities Assumed: Which debts, if any, the buyer will take on.
- Closing Date: When the ownership officially transfers.
- Representations and Warranties: Promises made by both sides about the business and the deal.
- Indemnification: What happens if one party breaks a promise.
Once signed, both parties are legally obligated to follow these terms.
Why this matters
The Definitive Agreement protects both the buyer and the seller. For the seller, it locks in the sale price and terms. For the buyer, it ensures they get what they paid for and clarifies any risks. Without a clear DA, misunderstandings can lead to legal disputes and even a failed sale.
Don’t rush signing the Definitive Agreement. Have your lawyer review every detail. This document is the foundation of your entire deal, and mistakes here can be costly.
Don’t rush signing the Definitive Agreement. Have your lawyer review every detail. This document is the foundation of your entire deal, and mistakes here can be costly.
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