BUYING AND SELLING A BUSINESS: The Post-Closing Phase
The work to be done after a closing varies with the complexity of the transaction. It can consist of many things. One of the most likely things that needs to occur is the proper recording of documents. This could include lien releases from the seller’s lenders, financing documents from the buyer’s lenders, deeds, mortgages, easements, financing statements, and transfer documents for motor vehicle titles. There is nothing sexy about this phase, but if it is not done correctly, significant legal rights could be lost. No one should walk away from the closing table without a clear understanding of who is going to be responsible for each document that needs to be recorded, the delivery of any required execution versions to third parties, and the compilation of final executed documents to be distributed to the buyers and sellers. If done thoroughly, this is generally a straightforward process if the closing is in person using hard copy documents. Where everything is electronic, with different parties emailing to other parties, with version changes, stray signature pages, and the like, coming up with the final set of documents can actually be very time intensive after the closing is over. The more disorganized the closing is, the worse the post-closing cleanup will be.
Aside from these logistical steps, there frequently is some portion of the purchase price that is held in escrow or that remains to be earned at a later date. Here, making sure the adjustments are made and required notices are given within the time frame set forth in the documents becomes critical. Post-closing adjustments, claims for breach of warranty, adjustments for accounts receivable that are uncollectible, and the like, require post-closing accounting attention. Someone will also need to be responsible for compliance with the terms of any required notices, particularly to any escrow agents regarding the release or non-release of funds.
Generally, definitive agreements say that time is of the essence. This means that there is no flex in a deadline unless it is extended prior to its expiration. So, right off the bat, there is already a contract administration function that needs to kick in to high gear to make sure that the post-closing details get the necessary attention. Future deadlines for recording, delivery of documents, inspection of records, filing of tax returns, and the like, need to be diaried in the buyer’s and the seller’s contract administration systems so that these deadlines are not missed. Missed deadlines frequently lead to litigation.
A final note, because so many things are done electronically, and because electronic versions are difficult to verify against one another, it is extremely important, although tedious, to be sure that whatever you understand to be the final versions of fully executed documents match everybody else’s and that mistakes in compilation have not been made. A missing exhibit or the use by mistake of an exhibit or a version that is two to three versions old can lead to serious litigation problems later.
As you chose to buy or sell a business, hopefully you will be able to successfully navigate your way through each of the six phases we have discussed. If you have, your chances of having a successful and satisfying outcome are greatly increased.