This is Part Four in a series discussing steps in a business transaction. In Parts One, Two, and Three, I discussed term sheets, definitive agreements, and financing. In this part, I’ll discuss regulatory and third party approvals.
Sometimes, approval from a third party is required before you can complete your transaction. For example, if you are purchasing or selling a franchise business, the approval of the franchisor is required before the franchise unit can be transferred.
In some circumstances, a governmental approval may be required for your transaction. For example, transferring properties regulated by the Federal Communications Commission (FCC) such as a radio station, television station, or cellular phone system requires submitting an application to and receiving the approval of the FCC.
If the transaction involves the sale of a business with one or more ongoing significant customer or vendor accounts, the buyer may want assurances that the accounts can and will continue after the transfer. In this case, continuation depends upon what the agreement between the seller and the account says with respect to assignment. Some customer and vendor account agreements state that the account may be assigned, some allow assignment with notice, some forbid assignment without consent of the vendor or customer; other account agreements are completely silent on the issue.
Delivery of these consents is generally one of the conditions to closing of the transaction.