Munyan Law Blog

I hear that regularly when I am representing a business

owner selling his or her business for less than $1,000.000. Hmm.... In my mind, unless

you’re a billionaire, any amount approaching $1,000.000 is definitely a big deal.

Sometimes attorneys catch this mindset too. I can see this at work when the buyer’s

attorney sends me a purchase agreement woefully short on details impacting both the

buyer and the seller.

Some examples?

1. Poorly crafted language. The right words always count, especially in a legal

document. Is the language straightforward and understandable? If I don’t

understand what the writer is saying, then a judge enforcing it won’t either. What

does “included in the prorations will be any customers of the seller that would be an

account receivable” mean? I have absolutely no idea.

2. Insufficient Definitions. Cursory definitions usually don’t cut it. Defining accounts

receivable as “accounts outstanding as of closing date, including any amounts

owed for services rendered but not yet paid” is not sufficient. What about the

rights of the seller to collect on notes, lawsuits, and other claims arising before

the closing date.

3. Key Details Not Spelled Out. Details matter. Seller’s employees must be paid all

funds owed to them on the closing date. Accounts receivable payments earned

before closing, but received (by the buyer) after closing, must be promptly

forwarded to the seller. Client deposits, rent, and utility expenses must be

prorated. And on and on.

4. Unlimited Seller Liability. The seller is selling his business, not his soul. The

indemnification liability of the seller needs to specifically exclude any liability for

.“consequential, punitive, and indirect” damages. Consequential means “indirect

losses, punitive means “intended as a punishment,” and indirect means “non-

immediate.” They also need to be time-bound. Do tax liabilities survive until the

statute of limitations runs out? OK. Ownership representations survive indefinitely?

Fine. But most other post-closing liability obligations need to expire after three

years.

Small deal? Maybe. But no matter the size, I do my best to wordsmith well-drafted

documents, with clear definitions, sufficient details, and reasonable protections for my

clients.