What Does Purchase and Sale Agreement (PSA) Mean?
The purchase and sale agreement (PSA) is the agreement that finalizes all terms and conditions in the buying/selling of a company as originally stipulated in the letter of intent (LOI). When the shares of a company are bought/sold, the PSA is a share purchase agreement (SPA). When only the assets of a company are bought/sold, then the PSA is an asset purchase agreement (APA). This final document is binding, and is usually completed after all buyer and seller due diligence has been finalized, as neither side can turn back once the agreement is finalized and executed.
The PSA is typically a long legal document which includes some of the following key sections that a seller should be aware of:
- Legal names and addresses of the buyer and seller;
- Definitions of terms used throughout the agreement;
- The kind of transaction (i.e. share or asset purchase);
- The purchase price and type of consideration paid (i.e. cash, vendor take back financing, consideration shares, etc.)
- Adjustments to the purchase price (i.e. a reduction in the purchase price if the working capital threshold is not delivered);
- Payment terms, milestones and deadlines (i.e. if a contingent consideration payment exists such as an earnout, this section would stipulate how and when the payment is made);
- Long-term liabilities assumed by the buyer (if any, in case of a share transaction);
- Representations and warranties made by the buyer and seller;
- Post-closing rights and obligations for both parties;
- Dispute resolution and arbitration protocol; and
- The closing date, location and signatures page.