Also included in this Risk assessment is a thorough analysis of:
- Litigation the Seller may actually or potentially be involved in;
- Pending or looming legislation that could adversely impact the business; or
- Other Business Risksthe Seller may be exposed to (such as environmental, employment, products liability, or tax liability risks).
Seller’s Role During Due Diligence.
The Seller should ensure it makes all relevant documents, information, and personnel readily available to Buyer. Also, as mentioned at the outset in the first article, a Seller should prepare for Due Diligence long in advanceby making sure its house is in order to avoid surprises that could concern a Buyer. Often – with the assistance of the company’s Team of Advisors – a Seller can first undertake an Internal Audit to ensure all of the above items and materials are in order.
- Practice Note: Don’t Forget All Required Consents
Certain critical consents may need to be obtained before a sale can occur which can be grouped into three categories: Corporate, Regulatory, and Contractual Consents.
Corporate Consents are given by a corporation’s shareholders and its Board of Directors, or, in the case of an LLC, the LLC’s members or Managers.
Regulatory Consents are needed for businesses that are subject to certain regulatory rules, and Buyers and Sellers should know whether the business might require them for ownership transfers. Likewise, “tax clearance” consents might be needed, such as the oft-overlooked “bulk sales” tax clearance in asset deals.
Contractual Consents are those needed from parties to contracts the business may have entered into, particularly with respect to non-assignment or change of control clauses.
Stage 6: The Closing
On the Closing date – and assuming all the Conditions to Closing are met – the company’s stock (in a stock deal) is formally sold; or, in an asset deal, the company’s assets are formally transferred.
Of course, because, as noted previously, there exist many ways to structure a company sale – including those transactions in which, for example, a Private Equity firm is involved or in which an owner stays on with the company that’s sold – the “deal” doesn’t always necessarily end with the Closing.
For both the Seller that wants to sell its business and the Buyer that wants to purchase one, it’s important to be fully aware of the above-mentioned range of legal considerations and the various stages involved in the process to help ensure a smooth and successful transaction.
Eli Mendoza on Equity and Financing