An asset purchase agreement attorney protects the buyer by reviewing representations and warranties, indemnification scope, successor liability exposure, and earnout provisions before signing. The goal is to confirm that the purchase price reflects what the buyer is actually acquiring and that post-close risk is contractually allocated to the seller. Both buyers and sellers need independent review before executing an APA.
Most buyers and sellers understand they need legal help with an acquisition. Fewer understand that the purchase agreement itself is where almost all post-closing disputes originate. The negotiation before signing is the only opportunity to correct provisions that allocate risk unfairly, define working capital in ways that produce disputes, cap indemnification below the point where it is meaningful, or omit conditions that protect the buyer if the business is materially different from what was represented.
This page covers what a lawyer reviewing an asset purchase agreement actually looks for, the specific provisions that most often create post-closing exposure, how the buy-side and sell-side reviews differ, and how Acquisition Stars handles APA review and redline engagements. If you are looking for the underlying explanation of what an APA is and how it works, see the asset purchase agreement guide. If you are in an SBA-financed deal, see the SBA acquisition attorney page for the compliance overlay that applies to your APA. If the deal is still at the LOI stage, start at the letter of intent guide before the APA is drafted. If what you actually have in hand is the broker's offer form, the shorter document signed before the LOI, see the business purchase agreement lawyer page instead.
An asset purchase agreement transfers specific business assets, not the legal entity. That distinction matters because certain liabilities follow the assets regardless of how the deal is structured: tax obligations, environmental exposure, and some employment claims. A buyer-side attorney reviews the APA to confirm that indemnification provisions cover these exposures and that the seller's representations are broad enough to provide recourse if something undisclosed surfaces post-close.
1 What Should Be in an Asset Purchase Agreement?
A thorough review of an asset purchase agreement touches every provision where deal risk is allocated between buyer and seller. These are the areas where unfavorable terms are most commonly found and most consequential if left uncorrected.
Representations and Warranties
Reps and warranties are the seller's promises about the state of the business. They cover financial statements, material contracts, litigation, taxes, employees, regulatory compliance, environmental status, intellectual property, and the absence of undisclosed liabilities. The breadth of each representation matters. A representation that the seller "has no knowledge of" pending litigation is much weaker than one warranting that no litigation is pending. Materiality qualifiers can dilute reps to the point where they provide no practical protection. The attorney reviews each rep to confirm it is accurately scoped and not hedged in ways that undermine its value.
Sellers also face rep exposure. A seller signing buyer-drafted reps may be committing to statements that are not accurate, or that are accurate today but not at closing. The seller's attorney reviews reps for over-breadth, accuracy, and the need for disclosure schedules to qualify statements that are not categorically true.
Indemnification Caps and Baskets
Indemnification is the mechanism by which a buyer recovers losses that result from a seller's breach of a representation. The cap is the ceiling on total seller liability. The basket is the floor a buyer must reach before any claim is paid. In small business acquisitions, caps often range from 10 to 100 percent of the purchase price. Baskets are typically set at 0.5 to 2 percent of purchase price as a deductible.
A cap set too low gives the buyer a theoretical remedy that cannot cover a real loss. A basket set too high means small breaches go uncompensated even though they cause real damage. Both are negotiated. Survival periods, the time window during which indemnification claims can be made, are equally important. Reps that survive for only 12 months after closing are often practically unenforceable because the buyer may not discover the breach within that window. The attorney reviews cap, basket, and survival period as a package.
Escrow and Holdback Provisions
Escrow and holdback amounts are portions of the purchase price withheld at closing to secure the seller's indemnification obligations. An escrow requires a neutral third-party escrow agent. A holdback is simply the buyer retaining funds directly. From the buyer's perspective, an escrow or holdback is meaningful protection: it means funds are available to satisfy a claim without requiring the seller to have liquid assets post-closing.
Sellers want low holdback amounts, short escrow periods, and clear release conditions. Buyers want higher holdbacks and longer periods. The attorney reviews the escrow provisions to confirm they are realistically sized relative to the risk profile of the reps, that the release conditions are workable, and that the dispute resolution mechanism for competing escrow claims is fair.
Working Capital Adjustment
Working capital adjustments are one of the most common sources of post-closing disputes. The adjustment mechanism sets a target working capital level. If the business delivers more at closing, the buyer pays more. If it delivers less, the seller refunds the difference. Disputes arise because the APA's definition of working capital determines the result, and ambiguous definitions produce disagreements about what items are included.
The attorney reviews the working capital definition, the peg methodology, whether the peg is based on a trailing average or a point-in-time snapshot, and the dispute resolution process for disagreements about the closing statement. The review should also confirm that the items included in working capital align with the actual operational profile of the business being acquired.
Earnout Structure
Earnouts are contingent payments tied to the business's post-closing performance. They are frequently used when buyer and seller disagree on valuation, or when the seller wants upside participation based on projections the buyer is not willing to pay for at closing. Earnout provisions are negotiated heavily because the earnout metric, measurement period, reporting obligations, and dispute resolution process all directly affect whether the seller receives anything after closing.
Sellers should review earnout provisions with particular care. A buyer controls the business post-closing and controls the accounting decisions that determine whether earnout metrics are hit. Sellers need earnout provisions that include anti-manipulation protections, require the buyer to operate the business in a manner consistent with maximizing the earnout, and provide audit rights. Buyers need earnout definitions that are objectively measurable and not subject to manipulation by the seller's post-closing conduct.
Non-Compete and Non-Solicit Provisions
Non-compete and non-solicit provisions restrict the seller from competing with the acquired business or soliciting its customers and employees post-closing. These are among the most valuable protections a buyer can negotiate. They are also among the most frequently under-negotiated by buyers using generic templates.
The geographic scope, duration, and covered activities must be broad enough to actually protect the goodwill the buyer is paying for. A non-compete that prohibits competition only in the seller's home county provides no protection if the business serves a regional or national market. A duration of one year may be inadequate if the seller's customer relationships run on multi-year cycles. The attorney reviews scope and duration against the business's actual market to confirm the provision is enforceable and meaningful. In SBA deals, the lender also has requirements around non-compete scope and duration that must be addressed in the APA.
Seller Note Terms
When the deal includes a seller note (seller financing a portion of the purchase price), the APA should reference the promissory note and standby agreement if applicable. Seller note terms, including interest rate, amortization, events of default, and subordination to senior lenders, appear in the note itself. The APA must be consistent with the note.
In SBA deals, the seller note must meet SBA standby requirements. Full-standby means the seller receives no payments of principal or interest during the standby period. Sellers who sign an APA without understanding this requirement are surprised at closing. The attorney surfaces this issue during APA review so both parties understand what they are agreeing to before documents are executed.
Purchase Price Allocation
Purchase price allocation determines how the total purchase price is assigned across asset classes (tangible assets, intangibles, goodwill, non-compete). Allocation has significant tax consequences for both buyer and seller, and the two sides often have opposite tax preferences for how the allocation is structured. The APA must include an agreed allocation schedule, and the parties must file consistent tax returns reflecting that allocation. The attorney reviews the allocation schedule to confirm it is accurately stated, consistent with the overall deal economics, and properly coordinated with the purchase price definition.
Conditions to Close
Conditions to close are the requirements that must be satisfied before either party is obligated to complete the transaction. Buyer conditions typically include that all reps are true at closing, no material adverse change has occurred, and required third-party consents (landlord, key contracts) have been obtained. Seller conditions include that the buyer has the funds available. The attorney reviews conditions to confirm they protect the client's ability to exit the deal if something material changes between signing and closing, and to confirm they are not so broad that they create risk of a frivolous failure to close.
A Note on Material Adverse Change Definitions
The MAC (material adverse change) definition determines what events allow a buyer to walk away from the deal after signing. A narrowly drafted MAC clause provides little exit protection. The COVID-era experience showed how MAC definitions that excluded industry-wide or macroeconomic events left buyers with no exit even when business conditions changed materially. In small business acquisitions, the MAC definition is often given less attention than it deserves.
2 Do I Need My Own Attorney If the Seller's Attorney Already Drafted the APA?
Both buyers and sellers need an attorney to review the APA before signing. The focus of each review is different because the risk profiles are different.
Buy-Side Review Priorities
- 1Are seller reps broad enough to provide real protection?
- 2Is the indemnification cap meaningful relative to deal risk?
- 3Is the escrow or holdback sized to cover likely claims?
- 4Is the working capital peg fair and the definition unambiguous?
- 5Does the non-compete actually protect the goodwill being purchased?
- 6Are key contract and lease assignments addressed and conditioned?
Sell-Side Review Priorities
- 1Are seller reps accurately scoped to what is actually true?
- 2Is the indemnification cap limited to protect post-closing exposure?
- 3Are rep survival periods appropriately short?
- 4Are the non-compete scope and duration commercially reasonable?
- 5Are disclosure schedules complete and accurate?
- 6Are earnout anti-manipulation protections in place if applicable?
Sellers sometimes believe that because they drafted the APA (or had their broker draft it), the review process is a formality. It is not. Sellers routinely sign reps they cannot satisfy, accept indemnification structures that expose them to claims larger than the purchase price, and agree to non-compete provisions that are broader than what they negotiated in the LOI. A sell-side review before signing catches all of these.
Asset Purchase vs. Stock Purchase: Key Differences
| Factor | Asset Purchase | Stock Purchase |
|---|---|---|
| Liability transfer | Buyer selects which liabilities to assume | All entity liabilities transfer to buyer |
| Tax treatment (buyer) | Step-up in basis; favorable depreciation | Carryover basis; no step-up |
| Due diligence scope | Focused on transferred assets and assumed liabilities | Full entity history including hidden liabilities |
| Contract assignment | Third-party consent often required | Contracts typically transfer automatically |
| SBA lender preference | Strongly preferred for SBA 7(a) deals | Permitted but faces more SBA scrutiny |
| Most common for SMB | Yes, transactions under $10M | Less common; used for licensing or contract continuity reasons |
3 The APA Review and Redline Process
Here is how an APA review and redline engagement works at Acquisition Stars from intake to completion.
Intake and Scope Confirmation
Submit the APA and a brief description of the deal: purchase price, whether it is SBA-financed, which side you represent, and any specific concerns you have identified. The firm reviews the document and confirms the scope of work and a flat fee before work begins. You receive a scope letter and confirm engagement. No work starts until you approve the scope.
Substantive Review
Alex Lubyansky reviews the full document. Every material provision is evaluated against market standards for small business M&A transactions, the specific deal context you have described, and (where applicable) SBA compliance requirements. The review covers reps and warranties, indemnification, escrow, working capital, earnout, non-compete, purchase price allocation, conditions to close, governing law, and dispute resolution. Provisions that create disproportionate risk are flagged. Provisions that are missing and should be present are identified.
Issues Memo and Priority Ranking
You receive a written issues memo covering every substantive finding. Issues are prioritized: high-priority items are provisions where the current language creates material risk or is clearly out of market; medium-priority items are provisions worth negotiating if the counter-party is cooperative; low-priority items are cleanup language that is suboptimal but not deal-critical. The memo tells you what to fight for and what to let go, which is as important as identifying the issues in the first place.
Redline Preparation
Where a redline is in scope (included in most engagements), the attorney returns the APA as a marked document showing proposed revisions. Redline language is drafted to be commercially reasonable and defensible, not aggressive for its own sake. Over-negotiating kills small business deals. Sellers and their attorneys walk away from buyers who turn a 20-page APA into a 50-comment markup of every clause. The redline focuses on what actually matters.
Counter-Redline Review and Negotiation Support
When the counter-party returns a counter-redline, the attorney reviews what was accepted, what was rejected, and what was modified. You receive a summary of where things stand and a recommendation on which remaining issues to press and which to concede. Negotiation support through final execution is available and can be scoped at intake if you expect a multi-round negotiation.
Final Form Review Before Execution
Once the parties reach agreement on all open issues, the attorney reviews the final execution form of the APA to confirm that all negotiated changes are accurately reflected, that no provisions have been inadvertently altered during the redline exchange, and that the document is internally consistent. You sign a document you have reviewed, not a document you have agreed to in principle but have not read in final form.
4 Flat-Fee Scope and Turnaround
APA review and redline engagements at Acquisition Stars are handled on a flat-fee basis scoped to the document and deal at intake. The flat fee covers a defined scope: initial review, issues memo, and a single redline pass. Counter-redline review and negotiation support beyond the initial redline are scoped and quoted separately, so you know the cost before proceeding.
What Drives the Flat Fee
The flat fee is set based on document length, deal complexity, and whether SBA compliance review is required. A straightforward 20-page APA for a sub-$1M acquisition is priced differently than a 60-page APA for a $3M SBA-financed deal with earnout provisions and a multi-member buyer entity. Factors that add complexity include earnout provisions with performance-based definitions, multi-entity structures on either side, SBA compliance requirements, unusual reps and warranties specific to the industry or assets being acquired, and a working capital mechanism with a complex closing statement process.
Expedited Review
Expedited review with 1 to 2 business day turnaround is available when closing timelines are compressed. Expedited review carries a premium above standard flat-fee pricing. If you have a closing deadline that requires expedited review, state that at intake and the firm will confirm whether expedited availability exists before taking on the engagement.
SBA-Specific APA Review
For SBA-financed acquisitions, the APA review includes a compliance check against SBA Standard Operating Procedure requirements. This covers purchase price allocation format, entity representation language, seller note consistency, working capital mechanics that work within SBA's framework, and conditions to close that accommodate the SBA lender's commitment conditions. SBA APA review is a separate scope from standard commercial APA review and is priced accordingly. For a full overview of SBA deal requirements, see the SBA acquisition attorney page and the SBA LOI requirements guide.
Request an APA Review Assessment
Submit your APA and deal details for a scope review. You will receive a flat-fee proposal and turnaround confirmation before work begins. Both buyers and sellers are within scope.
5 Frequently Asked Questions
What does an attorney look for when reviewing an asset purchase agreement?
An attorney reviewing an asset purchase agreement looks at the accuracy and scope of representations and warranties, indemnification provisions, survival periods, indemnification caps and baskets, escrow and holdback amounts, working capital adjustment mechanics, earnout definitions and dispute resolution, non-compete and non-solicit scope and duration, purchase price allocation, conditions to close, and any SBA-specific requirements if the deal involves SBA financing. The goal is to identify provisions that create disproportionate risk for your side and flag them for negotiation before signing.
How much does it cost to have a lawyer review an asset purchase agreement?
APA review fees depend on document length, deal complexity, and the scope of the review. At Acquisition Stars, APA review engagements are handled on a flat-fee basis scoped to the document and deal at intake. You receive a fee proposal before work begins. Submit your APA and deal details for a no-obligation assessment.
How long does an APA review take?
A standard APA review with a written issues memo typically takes 3 to 5 business days from document receipt. Expedited review in 1 to 2 business days is available when closing timelines are compressed. The turnaround is confirmed at intake before engagement begins. If you have a hard closing deadline, state it upfront so the firm can confirm availability.
Do I need an attorney to review an APA if the other side already has one?
Yes. The other side's attorney drafted the agreement to protect the other side's interests. A purchase agreement drafted by the seller's attorney will have seller-favorable representations, seller-favorable indemnification caps, seller-favorable survival periods, and seller-favorable working capital mechanics. Those provisions are not neutral starting points. If you sign without your own review, you are accepting whatever the drafter decided was acceptable for their client.
What does redlining a purchase agreement mean?
Redlining means the attorney returns the purchase agreement as a marked document showing proposed additions, deletions, and revisions. Each change is visible so the other side can see exactly what is being proposed. Redlining is the standard negotiation format for M&A purchase agreements. Most APA negotiations involve multiple redline exchanges before the parties reach a final agreed form.
Should the buyer or the seller hire an attorney to review the APA?
Both. Buyers need a review because the APA is where post-closing liability is allocated. Sellers need a review because the representations they sign commit them to statements about the business that survive closing and trigger indemnification obligations if inaccurate. Sellers signing a buyer-drafted APA without counsel are accepting rep and warranty language drafted to maximize seller liability. Both sides benefit from competent representation, and deals close more cleanly when both sides understand what they are signing.
What are reps and warranties in an asset purchase agreement?
Representations and warranties are statements of fact made by each party in the purchase agreement. Seller reps typically cover: accuracy of financial statements, status of material contracts and their transferability, absence of undisclosed liabilities, employee and benefit plan status, tax compliance, environmental compliance, intellectual property ownership, and absence of pending litigation. If a seller rep turns out to be false after closing, the buyer has an indemnification claim against the seller. The scope, materiality qualifiers, and survival period of reps are among the most negotiated provisions in any APA.
What is an indemnification basket and cap in an APA?
An indemnification basket is the minimum dollar amount of losses a buyer must suffer before the seller has any indemnification obligation. A tipping basket means the seller pays from dollar one once the threshold is crossed. A deductible basket means the seller pays only losses above the threshold. The cap is the maximum dollar amount the seller must pay in total indemnification, regardless of actual losses. Baskets and caps are heavily negotiated in small business acquisitions. Where these land relative to the purchase price determines how much protection the buyer actually has post-closing.
What is a working capital adjustment in an asset purchase agreement?
A working capital adjustment is a post-closing mechanism that adjusts the purchase price based on the actual working capital of the business at closing compared to a target level agreed in the APA. If the business delivers more working capital than the target, the buyer pays more. If it delivers less, the seller refunds the difference. Working capital adjustments are frequently disputed because the definition of working capital in the APA drives the result, and ambiguous definitions produce disagreements about what items are included. Buyers should have their attorney review the working capital definition, peg, calculation methodology, and dispute resolution process before signing.
Does an SBA-financed deal require a specific form of asset purchase agreement?
Yes. An SBA 7(a)-financed acquisition requires an APA that complies with SBA Standard Operating Procedure requirements. SBA-specific requirements include: purchase price allocation the lender can verify, no undisclosed compensation to the seller, representations that satisfy lender underwriting conditions, and entity structure language confirming a new entity is acquiring assets. The APA must also be compatible with the seller note and standby agreement the SBA lender requires. A generic APA template, or one drafted without SBA literacy, will produce a document the lender rejects or conditions heavily. See the full overview at small business acquisition attorney.
Related Resources
Asset Purchase Agreement Guide
What an APA is, how it is structured, and what every buyer and seller should understand before the document is drafted.
Letter of Intent Guide
The LOI stage happens before the APA is drafted. Understanding what the LOI establishes prevents APA problems downstream.
SBA Acquisition Attorney
Full coverage of SBA 7(a)-financed acquisitions and the SBA compliance requirements that apply to the APA and deal structure.
SBA LOI Requirements
The specific LOI provisions SBA lenders require before underwriting begins, which shape what the APA must contain.
Asset Purchase vs. Stock Purchase
Why the deal structure choice matters and how it affects the form and scope of the purchase agreement.
Request a Consultation
Submit your APA and deal details for a flat-fee assessment and turnaround confirmation.
Have an Attorney Review Your APA Before You Sign
Submit your purchase agreement and deal details. You will receive a flat-fee proposal and turnaround confirmation before work begins. Buyers and sellers are both within scope. SBA-financed deals and conventional transactions are both handled.
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