Legal Blog

M & A Nuggets: Seller- Know Your Liabilities

shutterstock_203752900On transactions structured as an asset purchase, the purchaser usually does not assume, (agree to pay) the seller’s liabilities.  Instead, the seller usually pays its liabilities from the proceeds of the purchase.  It is important that the seller understand the full extent of its liabilities so that it can plan accordingly and so that there are no surprises after the closing.  Most liabilities are evident and appear in the seller’s books and records.  Amounts owed to vendors and suppliers for current charges and to lenders on loans are finite and exact.  Other liabilities may not be so evident, especially liabilities that relate to a contract you intend to terminate.  Suppose that you are in the middle of a five year term on a lease or rental contract that the purchaser does not intend to assume.  For example, a truck lease or a uniform rental contract.  Your intention would be to terminate the contract at the closing.  The problem, however, is that most lease and rental contracts have hefty termination fees.  These termination fees often equate to a substantial multiple of the regular monthly payment.  The bottom line is that you need to understand all the liabilities that your business will be exposed to once closing occurs, so that you can take the total amount of the liabilities into account when negotiating the purchase price for your business.


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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 businessesstructuring ownership agreements, and advising companies in financial distress






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