My October 31, 2018 Nugget discussed Transition Service Agreements, or TSAs, by which the seller continues to manage the operations for a temporary period of time after closing, because the parties desire to close the transaction prior to the time the buyer is ready to take over. Conversely, another scenario may exist when the parties desire to close, but cannot, until an event occurs or a consent is obtained. In this scenario, the parties may agree to transfer the operations of the business to the buyer before closing. This is typically done through a management agreement by which the buyer is given broad authority to manage the operations of the seller’s business. A similar result can be achieved through a subcontract agreement. Matters that must be considered in any such agreement include the degree of authority given to the buyer, the physical control of the finances and the compensation to be paid to the buyer for the services performed. Scenarios in which a management agreement may be appropriate include when the seller is waiting for a lien release from its lender, or if the transfer of a government contract is waiting for government approval. Whichever scenario applies, the management agreement can be a valuable tool to allow for the pre-closing transfer of the control of the operations to the buyer.
ABOUT GLENN D. SOLOMON
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Glenn D. Solomon is a principal at Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years. He has extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress.
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