EXCLUSIVE: NAI Business Series with Alf Sanderson*, VP Business Advisory
After buyer and seller have entered into a Letter of Intent, there may be several conditions to be met before the sale may be closed. Such conditions often address issues like assignment of the lease, verification of financial statements, transfer of licenses, or obtaining financing. There is usually a date set for meeting the conditions of sale. If a condition is not met within the specified period, the agreement is invalidated.
Generally, there are two types of business sale transactions, asset and share sale. Share sales are more complicated as contingent liabilities must be provided for when a business is sold. They most often occur because of pending tax payments, unresolved lawsuits or anticipated but uncertain costs of meeting regulatory requirements. Contingent liabilities can be handled by holding back a portion of the funds earmarked for disbursement to the seller. The sum held back then can be used to pay off the liability as it comes due. Any remaining money can then be disbursed to the seller.
There are many considerations and issues that can arise during due diligence and papering the transaction. It is very important for both parties to use a competent lawyer who is familiar with Mergers and Acquisitions and share sales. The legal profession as almost all professions is becoming more specialized and it is important to retain an experienced Mergers and acquisition lawyer.
Sale completion or closings, as they are also called, are usually done when a lawyer performs settlement. In this procedure, the attorney for the buyer draws up the necessary documents for settlement. Buyer and seller meet with their respective lawyers at a predetermined time (after all conditions of sale have been met). Buyer and seller sign documents at the meeting. A good settlement lawyer is also a good problem solver. He or she can help find creative ways to resolve differences of opinion. The buyer’s lawyers holds the money in trust and disburses it when all the appropriate documents are signed.
There usually is no formal final meeting at which the signing of the documents takes place. Buyer and seller usually sign them independently of one another. The lawyer agent also performs a lien search. This determines if any liens against the business’s assets have been filed in the records of the local courthouse.
A number of documents are required to close a transaction. The purchase and sale agreement is the basic document from which all the documents used to close the transaction are created. The documents most often used in closing a transaction are described below.
Other documents not described below may also be needed depending on the particulars of the transaction.
Written by Alf Sanderson*
Vice President Business Broker, Mergers and Acquisitions Consultant
604 691 6646
*Personal Real Estate Corporation
Alf has over forty years of industry experience, building and operating businesses, taking companies public and assisting firms in coordinating and selling their businesses. Contact Alf with your questions regarding the disposition of your business.