Congratulations, you completed the transaction it may have taken months to bring to a close. Whether you purchased a business or sold one, however, just because the closing documents were signed does not mean everything is finished.
Key Considerations and Issues: The following issues may apply to buyers and or sellers post-closing. Some of the issues will vary depending on the assets being purchased and the nature of the deal.
- Receipt of Seller and Buyer Shareholder and Board of Director/Member Authorizations and Resolutions. Prior to a sale and transfer of assets, parties must agree and consent to the sale and purchase and have the authorized agents sign off on consent forms. Corporate or LLC resolutions should be executed by the authorized parties and provided prior to or at closing, and/or may be attached to the purchase agreement.
- Bring-Down Certificates. The certificate is signed by the authorized seller and verifies that all representations and warranties are still true and correct, that all existing contracts and commitments and third party agreements are still valid, and that seller has secured all internal and third party authorizations for the sale.
- Name Changes, Name Verification and Amendment to Seller’s Operational Documents. Make sure both the seller’s and buyer’s counsel files appropriate state forms for transitioning ownership of seller’s name and assumed names, and that there are no conflicting trademark or domain name registrations. Also, seller’s counsel should prepare amendments to the articles of organization or incorporation and all subsequent minutes, resolutions or operating agreements to reflect the sale and transfer of assets/interests.
- UIA Forms, State Forms, Tax Clearance Certificate and Real Estate Transfer Documents.
- UIA Form 1027-Seller provides to buyer to verify seller’s unemployment compensation tax rates for the previous five years. If buyer acquires more than 75% of seller’s assets, buyer will be liable for seller’s unpaid taxes and its own rate will be affected by seller’s previous rate.
- UIA Schedule B– Purchaser must complete and submit this schedule B to show successorship of assets and the party responsible for future assessments.
- UIA Form 1395– The “Clearance of Account” form is used by the buyer to certify the tax liability of the seller. Generally, this is requested prior to closing and attached as part of the package.
- Conditional Tax Clearance and Request for Tax Clearance. Conditional clearance is requested prior to closing to provide buyer assurance of no unpaid state taxes or tax liens. A formal request is handled post closing prior to dissolution of the seller.
- Form 531– Certificate of dissolution of the seller’s business after the closing of sale, if applicable.
- Assignment and Transfer of Leases, Licenses and Third Party Contracts. Make sure that the seller provides a list of its existing lease agreements, licenses and all third party supplier, vendor or contractor agreements prior to closing, and that these are referenced in seller’s representations in the purchase agreement. Verify that the buyer is able to maintain these commitments and relationships post-close. Make sure all other third parties have been notified and have provided consent for the assignment of seller’s rights.
- Transitional Insurance Coverages. When representing the buyer, make sure the seller maintains adequate insurance coverages that run after closing to cover things like standard P&C/E&O, if applicable, business interruption insurance, health care insurance and COBRA liability, worker’s compensation, representation and warranty coverage (coverage specific) and environmental coverage for unknown liabilities which may develop post-closing.
- Affidavit of Creditors. This document lists all known liabilities (existing or pending), the values of the liabilities, whether they are secured or not and the properties/assets being used as collateral. This pertains to all unpaid personal property taxes for which a lien will be automatically assessed against that property.
- Adjustments. The purchase agreement may provide for various post-closing adjustments to the purchase price, the quantity of seller’s inventory, if applicable, accounts receivable and other assets which may be excluded from the sale at or after closing.
- Non–Compete Agreements. Generally these covenants can be included within or outside of the purchase agreement, but the terms and conditions need to be reasonable enough to meet the legal enforceability requirements and practical enough to be monitored and enforced by the buyer.
- Consulting or Transition Agreement. An addition to the purchase agreement, the parties will execute a consulting or transitional agreement that describes how the seller will help transition the purchased assets (customers, suppliers, use of equipment, collection of AR, etc.) over a period of time for a negotiated fee. They can become an employee or contractor of the buyer in an advisory capacity, but with no executive authority.
Due diligence and close attention to detail is always necessary to complete the purchase or sale of a business, but the deal isn’t over the second money changes hands.