The Document That Decides What You Actually Keep

The price is one line. The other hundred pages decide what reaches your account on the day, what you have promised about a company somebody else now owns, for how long, up to what amount, and what they may do if they decide you were wrong.

Everything you negotiated either appears in the purchase agreement or it does not exist. The handshake, the structure agreed in a letter of intent, the findings settled over email: none of it survives on its own.

The first draft is not neutral

The buyer’s attorney usually prepares it. That is ordinary, and it is not the same thing as even-handed.

A first draft is a set of defaults, and every default in it was chosen by somebody representing the other side. None of them have to be improper. They are the version of each term a buyer picks when nobody asks for anything different, and they stay until somebody asks. Reading a draft agreement is not reading a neutral description of what was agreed. It is reading the buyer’s account of it.

Eight sections, and the ones that decide what you keep do not look important

1. Introduction. Names, addresses, and the background of the parties. Read once, never again.

2. Terms of the deal. The operative section. What is being sold, whether assets or equity, the price, and how and when it is paid. The installment terms, rate, security, and any guarantee behind anything deferred. The earnout provisions behind anything contingent. In an asset sale, the allocation of the price across the assets, which is a schedule worth real money.

3. Representations and warranties. Statements of fact each side makes to the other. Yours will cover the financial statements, the assets and liabilities as of the closing date, ownership, contracts, compliance, and a long list of specifics that came out of the buyer’s investigation.

4. Pre-closing obligations. What each side does between signing and closing, which are two different dates. Records, running the business in the ordinary way, and not taking on commitments outside normal course.

5. Pre-closing conditions. What has to be true before anybody is obliged to close. A condition is not a promise. It is an exit. Each one is a circumstance in which the buyer is permitted to walk, so how many there are and how specifically they are written deserves as much attention as the price.

6. Post-closing obligations. What happens after the money moves, including what happens if a representation turns out to be wrong. Indemnification and its remedies, anything tied to specified financial performance, and the obligations under any employment, consulting, or non-compete agreement.

7. Miscellaneous provisions. Governing law, who pays which costs, how disputes get resolved, what counts as a default. The heading says leftovers. A dispute-resolution clause decides where you would have to travel and what it would cost you to be right.

8. Closing procedures. Which documents get signed, in what order, what gets delivered, and how the money moves.

The section that outlives the closing

Representations and warranties are the one place a seller’s exposure continues after the wire arrives. It is also the section that gets skimmed, because it arrives last, when the deal feels finished and nobody wants to read anything.

Read it anyway. Four things decide what that exposure is actually worth, and all four are negotiated rather than fixed.

How long they last. A stated period after closing, often a different period by category.

Whether there is a ceiling. The amount recoverable is usually capped, and the cap may differ by category.

Whether small claims count. Agreements commonly set a floor a claim has to reach before it can be made at all, and how that floor works varies.

Where the money comes from. Part of the price may sit in escrow for the survival period, the exposure may be insured, or the buyer may be relying on your promise.

None of the four is a detail, and all four are commonly conceded by sellers who have stopped reading. Each one is a real number that can be priced against the headline.

Ask for the settlement statement early

The settlement statement is a worksheet setting out every payment and expense on both sides. It is the document that tells you what actually reaches you, as against what the price says.

Most sellers see it for the first time at the closing. Ask for a draft weeks before that, while a line on it can still be an argument rather than a surprise.

What else arrives with it

• A promissory note, if any of the price is deferred. The amount, the rate, the schedule, and your rights if payments arrive late or stop.
• A security agreement, which records your interest in the collateral named in the note, and decides whether a deferred payment is secured or merely written down.
• An employment or consulting agreement, if you or anyone else is staying. Compensation, what is actually being asked of you, and for how long.
• Transfer documents. A deed, a bill of sale, and assignments for contracts and intellectual property.

What getting it wrong costs

An owner arrives at this stage exhausted and treats the agreement as the paperwork after the deal.

It is not the paperwork. It is the deal. Every term above is one somebody can negotiate and most sellers do not, because by this point they want it finished, the document is long, and the other side’s attorney wrote it in a voice that sounds like description rather than argument.

The money in a sale is made in preparation and protected here. This is the last room in which any of it can still be lost, and it gets lost quietly, in a paragraph nobody read out loud.

More on this: The Schedule Where a Negotiated Price Quietly Gets Taken Back.

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This is what we do. Prism Edge works the commercial side of this document: pricing the survival terms against the headline so you know what each concession costs, pulling the settlement statement forward, resolving the questions attorneys would otherwise escalate, and making sure the paper says what was actually agreed in the room. Several professionals are working at once by this point, and somebody has to point all of them at the same closing date.

The full chapter on the closing documents, and the four terms sellers concede without noticing, is in The Business Sale, free to download here.

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General information, not legal, tax, or financial advice, and no advisor relationship is created by reading it. Rules change and the specifics of your situation matter. Always consult your own attorney and accountant before acting.