By the time a purchase agreement lands on the table, both sides have usually already invested months of time, a letter of intent, and a lot of emotional energy in the deal happening. That's exactly the moment people are most likely to rush through the document that matters most.
Whether you're buying or selling, the purchase agreement is where the deal actually gets decided — not the handshake, and not the letter of intent that came before it.
Indemnification is the contract provision that determines who bears financial responsibility if a problem from before closing — an undisclosed liability, a misstatement, a breach — surfaces after the deal has closed.
What Buyers Commonly Miss
- Representations and warranties that are too thin. These are the seller's promises about the state of the business — its finances, its contracts, its compliance history. Weak or vague representations leave a buyer with little recourse if something turns out to be wrong after closing.
- Indemnification gaps. Who's responsible if a problem from before closing surfaces after closing? Without clear indemnification terms, a buyer can end up owning a liability they never agreed to take on.
- Assuming due diligence caught everything. Due diligence is a snapshot, not a guarantee. The purchase agreement is what actually protects a buyer against what diligence didn't catch.
- Underestimating what it takes to retain key employees and client relationships through a transition — something no amount of legal drafting alone can fully guarantee, but the agreement can at least address incentives.
What Sellers Commonly Miss
- Overly broad indemnification obligations that leave a seller financially exposed long after they've walked away from the business.
- Earnout terms that sound good until you read the fine print. An earnout tied to post-closing performance can be structured in ways that make it very difficult to actually collect, especially if the buyer controls the business during that period.
- Non-compete and non-solicitation clauses that are broader than expected — potentially limiting what the seller can do professionally for years afterward.
- Assuming the deal is done once the purchase agreement is signed, when in reality closing conditions still have to be satisfied, and deals do fall apart between signing and closing.
| What Buyers Commonly Miss | What Sellers Commonly Miss |
|---|---|
| Representations and warranties that are too thin to rely on | Indemnification obligations broader than they realize they're accepting |
| Assuming due diligence caught everything material | Earnout terms that are difficult to actually collect on |
| Underestimating what it takes to retain key employees and clients | Non-compete clauses broader than expected |
| Treating the signed agreement as a done deal | Assuming signing means closing is guaranteed |
Why Deals Fall Apart
Some of the most common reasons a business sale collapses, or creates a dispute after closing, trace back to the purchase agreement itself:
Common deal-breakers:
- Financing falls through after the purchase price was already agreed to
- Due diligence surfaces a problem the purchase agreement doesn't clearly address
- The parties disagree on what a vague term in the letter of intent actually meant
- Key employees or clients don't transition the way either side assumed they would
- Post-closing disputes over indemnification, earnouts, or working capital adjustments
Most of this is preventable with a purchase agreement that's specific instead of generic, and reviewed by someone representing your interests specifically — not just relying on the other side's attorney to draft something "standard."
Key Takeaways
- The purchase agreement, not the letter of intent, is where a business sale is actually decided.
- Weak representations and indemnification gaps are the most common ways buyers get exposed.
- Earnouts and non-competes are the terms sellers most often underestimate.
- Signing the agreement doesn't mean the deal is done — closing conditions still have to be satisfied.