The Legal Framework of M&A: Key Documents Explained

Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute legal advice. Consult a qualified legal professional for advice regarding your individual or business situation.

Mergers and acquisitions (M&A) involve complex negotiations, strategic planning, and thorough legal documentation. Understanding the key legal documents that govern M&A transactions is crucial to protecting your interests and ensuring a smooth deal process.

This guide breaks down the essential M&A legal documents every business owner and investor should know.

1. Confidentiality Agreement (NDA)

Before any detailed discussions occur, parties typically sign a Non-Disclosure Agreement (NDA).

• Protects sensitive financial and operational information.

• Prevents buyers or sellers from using confidential information outside of the transaction.

• Sets ground rules for confidentiality and exclusivity during preliminary discussions.

An NDA is often the first legal document signed in the M&A process.

2. Letter of Intent (LOI)

The Letter of Intent is a non-binding document outlining the preliminary terms of the deal, including:

• Proposed purchase price (enterprise value)

• Payment structure (cash, stock, earnout)

• Target closing date

• Due diligence timeline

• Key conditions to close

While non-binding on most points, certain provisions like exclusivity and confidentiality are often binding.

Signing an LOI triggers formal due diligence and moves the deal toward definitive agreements.

3. Purchase Agreement (APA or SPA)

The Purchase Agreement — either an Asset Purchase Agreement (APA) or Stock Purchase Agreement (SPA) — is the definitive contract that finalizes the deal.

Key elements include:

• Detailed description of assets or stock being transferred

• Purchase price and adjustment mechanisms (e.g., working capital peg)

• Representations and warranties of both parties

• Indemnification terms and survival periods

• Closing conditions

The APA or SPA is the heart of the M&A legal framework, outlining exactly what is being bought, under what conditions, and with what protections.

4. Disclosure Schedules

Disclosure schedules supplement the purchase agreement by listing exceptions to the seller’s representations and warranties. They contain:

• Lists of contracts, liabilities, employees, IP, and lawsuits

• Any deviations from standard operating representations

They are critical because they limit the seller’s liability post-closing by formally disclosing potential issues to the buyer.

5. Employment and Consulting Agreements

In many M&A deals, the buyer requires key employees or owners to stay on after the sale.

• Employment agreements formalize continued roles, compensation, and incentive structures.

• Consulting agreements allow sellers to transition out of operations while advising the new owner.

These agreements protect continuity and smooth integration post-transaction.

6. Earnout Agreements

An earnout links part of the purchase price to future business performance.

• Often used when buyers and sellers disagree on valuation.

• Defines how post-closing metrics (e.g., revenue, EBITDA) trigger additional payments.

Earnout agreements need to be clear, measurable, and enforceable to avoid disputes.

7. Escrow Agreements

To protect buyers against undisclosed liabilities, a portion of the purchase price may be placed into escrow:

• Held by a neutral third party (escrow agent).

• Released after a specified period if no claims arise.

Escrow terms are negotiated to balance buyer protection and seller access to proceeds.

8. Financing and Subordination Agreements

If the buyer is financing the acquisition through lenders:

• Financing agreements outline loan terms, covenants, and collateral.

• Subordination agreements prioritize lender rights over seller-financed notes (if applicable).

These documents ensure the buyer’s funding is legally sound and the seller understands the hierarchy of repayment obligations.

9. Board and Shareholder Approvals

In larger transactions, formal approval may be needed from:

• The selling company's board of directors and/or shareholders

• The buying company's board and financing sources

Resolutions and voting records are included as part of the closing documentation package.

10. Closing Documents and Deliverables

Finally, at closing, parties execute:

• Closing certificates

• Officer certificates

• Resignations of officers/directors (if applicable)

• Bills of sale, IP assignments, or stock transfer forms

These formalize the transfer of ownership and operational control from seller to buyer.

Final Thoughts

The legal framework of an M&A transaction is detailed and highly technical — but every document serves an essential role in protecting both parties. Business owners must work closely with their M&A attorneys, investment bankers, and tax advisors to ensure that documents are properly drafted, negotiated, and executed.

At William & Wall, we guide business owners through the entire sale process, from early deal structuring through closing, helping to manage the financial, and strategic complexities, while liaising with legal and tax professionals.

Contact us today to start planning your business sale or forge the path ahead.