Business Purchase Agreement Red Flags: A Buyer’s Checklist
A fast checklist of the clauses that most often disadvantage a buyer in a business or asset purchase agreement.
Last reviewed: May 26, 2026 by the BizLeaseCheck Editorial Team
General information, not legal advice.
Overview
Most of the risk in an APA/SPA clusters in the indemnity package, the post-closing adjustments, and the closing conditions. This checklist links the deeper guides so you can spot the issues quickly.
It is written from the buyer’s side, but a seller can read it in reverse — the same clauses a buyer flags are the protections a seller is trying to keep.
Topics to check
Assumed-liability language that sweeps in "all pre-closing liabilities, known or unknown"; missing or thin excluded-liability schedules; no allocation agreement (Form 8594 left to one side); and disclosure schedules the seller can update unilaterally to cure breaches before closing.
These shift the target’s past and its tax allocation onto the buyer. Tie down the schedules and the allocation.
A short representation survival (e.g., six months); a low cap combined with a high basket/deductible; an exclusive-remedy clause that bars even fraud; anti-sandbagging; no indemnity escrow or holdback; no working-capital true-up (or a seller-set peg); and an earnout whose disputes are decided by the seller’s accountant.
These decide whether the buyer can recover if the business is not as represented. Build a balanced indemnity package with an escrow.
No condition for key consents (lease, top customers, licenses); no key-employee retention or MAE condition; a weak or short non-compete; the buyer assuming all WARN and employee liabilities; and no exclusivity/no-shop so the seller can keep shopping the deal.
These decide deal certainty and whether the buyer is protected at closing. Make the critical items conditions, and get a real non-compete.
Key takeaways
- Structure: broad assumed liabilities, thin excluded schedules, seller-set tax allocation.
- Indemnity: short survival, low cap + high basket, exclusive remedy barring fraud, no escrow.
- Adjustments: no working-capital true-up; earnout disputes decided by the seller’s accountant.
- Closing: missing consent/MAE/key-employee conditions; weak non-compete; no exclusivity.
- Read it from your side and build a short negotiation list before signing.
Official resources
Legal-review notes
Guide confidence marker: Medium confidence.
- This checklist is general issue-spotting, not jurisdiction-specific legal conclusions.
- Indemnity, non-compete, and tax outcomes vary by state and structure; confirm with counsel and a tax advisor.
Frequently asked questions
What is the single biggest red flag in a business purchase agreement?
There is no single one, but a short representation survival combined with a low indemnity cap, a high basket, and an exclusive-remedy clause that bars fraud is a dangerous combination — it can leave a buyer with little recourse if the business was misrepresented.
How do I use this checklist?
Read the agreement once for structure and liabilities, once for the indemnity and adjustments, and once for closing conditions and covenants. Flag anything on this list, then read the linked guide for the specific clause and decide what to negotiate.
Is a one-sided agreement normal?
Seller and buyer drafts each start one-sided; that is expected. Review is about identifying the imbalances that matter for your side — especially in the indemnity package — and negotiating the ones with real dollar consequences.