This is part nine of our series discussing the sale of a business from the seller’s perspective. We’ve covered deal structure issues, seller financing, earn-outs, letters of intent, due diligence, and the first three sections of the purchase agreement dealing with (i) major business points, (ii) representations, warranties, and disclosure schedules, and (iii) pre-closing covenants and conditions to closing. In this post, we’ll discuss the closing of the purchase and sale transaction.
Today, most closings are handled via email exchange of scanned signed documents, with original hardcopy of signed documents to follow by mail, and transfers of funds by bank wire. While this is usually a convenient way to finalize the transaction (as opposed to the older way of having everyone around a table to sign and exchange documents), it requires more advance planning and can become a logistical nightmare if the process is not completely thought through, particularly when many parties or third parties not affiliated with the buyer or seller are involved.
Here are some tips for sellers in handling the closing:
Tip 1 — Have a Checklist. Having a closing checklist is a must! The buyer’s counsel generally prepares a checklist and circulates it to all parties. If that doesn’t happen in your case, ask that your lawyer prepare one – and be sure to read it and ask questions if anything is unfamiliar. Most deals will include numerous documents and require signatures from a number of parties, including several third parties. To keep organized, it’s almost a certainty that you’ll need a checklist to note each document to be signed, the status of the document until it’s in final form, and who needs to sign it. The checklist should be constantly updated until right before the closing when it’s final. If you have your own checklist prepared, be sure the buyer has a copy. Most likely the buyer will have its own but just be sure you and the buyer are working off the same list and are in agreement as to where things stand as closing approaches. The closing checklist should include tasks to be completed after closing, too, so don’t discard it after the closing.
Tip 2 — Get Third Party Signatures in Advance. As we’ve previously discussed, there will likely be a period between the signing of the purchase agreement and the closing when the parties will be required to get certain third-party consents and take care of other pre-closing conditions. Be sure to have these in hand before closing if at all possible. You don’t want to be trying to track down a third-party who is out-of-town on vacation on the day of closing. If it’s necessary to hold signatures in escrow pending closing, that’s fine, but be sure the signing party is prepared to release the signatures upon the closing (usually an e-mail or call to you and your lawyer will suffice for this).
Tip 3 — Double Check Wire Transfer Instructions. Get your wiring instructions from your bank in advance and double-check them. Then double-check that the buyer has them correct on any document it’s using to get the wires out. I saw one deal delayed because of a transcription error on wiring instructions delivered correctly by the seller but erroneously transcribed onto a bank document by a secretary for the buyer’s counsel. The seller was not pleased to get his funds a day late. A better solution is to simply attach the wire transfer instructions received from the seller to the buyer’s bank’s internal document but do it far enough in advance so the bank can let you know if it has a problem with this setup.
Tip 4 — Coordinate Schedules and Availability. It seems inevitable that someone will be traveling on the closing day, often in some foreign country. So be sure to coordinate schedules of everyone who will be signing well in advance. If any party or third-party will be out-of-town, be sure to get his or her signatures in advance to be held in escrow and set up clear instructions on how his or her signatures will be released. Don’t forget officers within your company whose signature might be required on one minor document. For example, the managing members or top officers know they will have to sign documents and be available throughout the day of the closing, but the company secretary, who might not otherwise be involved in the transaction or even around on a regular basis, may be required to sign just one certificate. Be sure to get that signature when you can.
A well thought through closing should be a simple event, but the importance of adequate preparation and planning cannot be underestimated. The buyer’s and your lawyers will be the ones in the drivers’ seats, but don’t settle in for a nap in the back — be on top of what you and others within your control will be required to review, provide, and sign throughout the process.
This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.
