There are a number of things to cover in the closing process. The Purchase and Sale Agreement is the governing document that covers all aspects of the transaction. This includes:

  • The description of the transaction- Is it a stock or asset sale?
  • The terms of the agreement- This covers the price and how it is to be paid.
  • The representations and warranties- These are usually negotiated after the Letter of Intent is agreed upon. Both buyer and seller want protection from any misrepresentations.
  • The conditions and covenants- These include non-competes and agreements to do or not to do certain things.

There are four key steps that must be undertaken before the sale of a business can close:

  1. Make sure you have the legal right to sell the business and the authority to do so.
  2. Make sure due diligence has been completed and that all claims and representations are substantiated.
  3. Secure financing and make sure all paperwork is in order.
  4. Make sure representations and warranties are in place with remedies available to the buyer in case of seller’s breach.

There are two major elements of the closing that take place simultaneously:

  • Corporate Closing: This is the actual transfer of the corporate stock or assets based on the provisions of the Purchase and Sale Agreement. All of the paperwork outlined in the Purchase and Sale Agreement has been completed, including stockholder approvals, litigation and environmental issues, representations and warranties, leases, employee and board member resignations, etc.
  • Financial Closing: This is the paperwork and legal documentation necessary to provide funding. Once all of the conditions of funding have been met, titles and assets are transferred to the purchaser, and the funds delivered to the seller.

When a business is ready to close its doors, a pre-closing meeting should be held to resolve any outstanding disputes and to finalize paperwork. This meeting should take place a week or two prior to the actual closing, in order to give everyone enough time to review and sign documents. During the pre-closing, both parties should agree on all outstanding matters to avoid any disagreements on the day of the closing. Keep in mind that mistakes made during this process can be costly, so it is important to seek expert advice. The closing should be a time of celebration for both parties involved, not a time to cut corners.

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