All matters in a Purchase Agreement to buy or sell a business are negotiable. However, there are certain matters which are normal and have various resolutions. Continuation of liability for some obligations is one.
A Buyer will want to have a remedy in the event the truth of representations and warranties that it relied upon in determining whether or not to buy turns out to be false. That is, it will want the Seller to remain liable. Some of these representations relate to financial statements, payment of taxes, environmental, customer lists, equipment and inventory, employees, real estate, working capital, authority, litigation, material contracts, title to assets and so forth.
There may also be some post-closing agreements that Seller must do or stand behind. These include introduction to, and transition of customers and suppliers, non-competition agreements, product warranties, and the like.
What to do? Negotiations should try to limit the exposure to these liabilities and obligations. This limitation can include
• establishing a dollar threshold that must be exceeded before Seller has liability,
• limiting the length of time that the representations and warranties or agreements survive,
• placing a dollar ceiling on the total and individual matter liability,
• excluding certain damages, and
• agreeing on reasonable procedures to determine ultimate liability.
For more information about negotiating the sale or purchase of a business, contact Lommen Abdo Attorney Bob Abdo at ra***@****en.com or 612-336-9334.
