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Definitive Purchase Agreement

Definition - What does Definitive Purchase Agreement mean?

A definitive purchase agreement is a legal document which records the conditions for a purchase/sale of a business. It is a mutually binding contract between the buyer and seller. It includes the terms and conditions for acquisition or purchase of a firm such as the purchase consideration, payment mode, structure of sale, and even the termination clause in case of a default, among others.

Divestopedia explains Definitive Purchase Agreement

A definitive purchase agreement is used to formally transfer the ownership of a firm irrespective of the size of the firm. It documents the final mutual understanding reached by the buyer and the seller.

The signatures of the buyer and the seller are witnessed and the supporting papers such as the inventory list, tangible assets list, bill of sale, etc., are enclosed with the definitive purchase agreement.

The clauses normally included in such an agreement are:

  • Assets purchased
  • Trade name and property transfer
  • Purchase consideration
  • Mode of payment
  • Obligations
  • Warranties and covenants made by both parties
  • Deliveries
  • Liabilities
  • Indemnities
  • Compliances
  • Closing conditions
  • Termination and defaults
The vendor of a business should always consider which party prepares the first draft of a definitive purchase agreement. The party that drafts the agreement will usually include terms favorable to them, but will also typically incur higher legal costs.

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