Legal Blog

M & A Nuggets: Handling The Holdback

shutterstock_236527597Often, the entire amount of the purchase price in a business acquisition is not paid at closing. The part of the purchase price to be paid after closing is often referred to as the holdback. The purchaser typically wants to hold back part of the purchase price to be able to fund any losses sustained by the purchaser from the seller’s breaches. Although the most certain way to assure that this can be accomplished is to give the purchaser the unilateral right to set-off the holdback money against losses, well represented sellers will usually not agree to that. An alternative arrangement to use is an escrow to maintain the holdback. A set of procedures is agreed to that lays out what happens to the holdback upon a claim by the purchaser. The escrow agent must be chosen and is typically either the purchaser’s attorney, the seller’s attorney or an independent third-party. Another way to manage the holdback is to provide that a portion of it is released over time to the seller. You should also set forth the procedure that will be used to resolve a dispute over the holdback, such as mediation, arbitration or court. A previous nugget discussed dispute resolution procedures. In any event, in formulating how the holdback will work, there needs to be a balance between giving the purchaser enough protection to assure that it will be able to recover its losses and giving the seller comfort that it will receive its unpaid purchase price. manuggets subscribe2

ABOUT GLENN D. SOLOMON

Glenn D. Solomon Esq., is a principal at the law firm of Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years, with extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress

ABOUT OFFIT KURMAN

Offit Kurman is one of the fastest-growing, full-service law firms in the Mid-Atlantic region. With 120 attorneys offering a comprehensive range of services in virtually every legal category, the firm is well positioned to meet the needs of dynamic businesses and the people who own and operate them. Our eight offices serve individual and corporate clients in the Maryland, Delaware, New Jersey, and Northern Virginia markets, as well as the Washington DC, Baltimore, Philadelphia, and New York City metropolitan areas. At Offit Kurman, we are our clients’ most trusted legal advisors, professionals who help maximize and protect business value and personal wealth. In every interaction, we consistently maintain our clients’ confidence by remaining focused on furthering their objectives and achieving their goals in an efficient manner. Trust, knowledge, confidence—in a partner, that’s perfect. You can connect with Offit Kurman via ourBlogFacebookTwitterGoogle+YouTube, and LinkedIn pages.  You can also sign up to received Law Matters, Offit Kurman’s monthly newsletter covering a diverse selection of legal and corporate thought leadership content.

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