The Stages in Buying and Selling a Small Company, Part 2
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3. Reps & Warranties:
Representations and Warranties are statements attesting to the truth of the information the parties provide.
A Buyer’s Reps often relate to its ability to do the deal; whereas the Seller’s Reps – usually more detailed – concern the condition of the company and its assets. Care must be taken in drafting Reps & Warranties since either party may later assert legal claims if a Rep or Warranty is false.
4. Covenants:
Covenants are agreements governing the parties’ actions between the signing of the Purchase Agreement and the Closing – as well their actions after the Closing in some deals.
Covenants might relate to how the business is to be run before the Closing; or, they might outline the Buyer’s permitted access to the company during Due Diligence. Post-Closing covenants might include Buyer and Seller non-compete restrictions.
5. Conditions to Closing:
The Conditions to Closing outline specific items to be addressed by each party between signing and the Closing. They may include the Seller’s having to obtain certain Consents (discussed below) or the Buyer’s need to obtain financing. Indeed, one Party might not be obligated to close if a material condition of Closing is not met.
- Practice Note:
Not all deals have both a signing and then a subsequent Closing. Sometimes smaller deals close (and the purchase payment is made) on the same day the Buyer and Seller sign the Purchase Agreement.
6. Indemnities:
Indemnities generally address the Buyer’s and Seller’s rights to assert a claim for damages if any of the Reps, Warranties, or Covenants are violated.
7. Closing Provisions:
The Closing Provisions generally include the Closing Date, and, of course, the Buyer’s and Seller’s obligations to buy and sell the company or its assets on that Closing Date.
In our next articles we will discuss the final two stages of the purchase and sales process, i.e. Due Diligence, and the Closing Process.
Related articles:
The Stages in Buying and Selling a Company, Part 1