This is Part Six in a series discussing steps in a business transaction. In this part, I’ll discuss closing and ancillary documents.
For simple transactions, the “closing” simply consists of the parties signing the final version of the definitive agreement and making any payments due upon signing. For more complicated transactions, signing of a definitive agreement sets forth all the steps that are to occur prior to the closing.
Closings can take place with all the parties in one room or “virtually” with counter-signed documents delivered via facsimile or mail.
If there are any ancillary documents, the parties will sign
those as part of the closing. Most of the
ancillary documents should have been mentioned in the term sheet or the
definitive agreement. The specific
ancillary documents required depend upon the transaction. For example, here are some of the ancillary
documents you might sign at the closing for the purchase of a company:
- A Bill of Sale evidencing the transfer to the buyer of all the seller’s interests in the company assets.
- A Non-Compete Agreement is used if the seller has agreed not to directly or indirectly engage in the same business after selling the company.
- Assignment of Copyrights and Trademarks. These are short-form agreements evidencing the transfer of any copyrights or trademarks associated with the business. If the copyrights and trademarks are valuable to the newly acquired business, the buyer may want to file evidence of the assignment with the U.S. Copyright Office or with the U.S. Trademark Office.
- Franchisor’s Letter/Assignment and Acceptance of Franchise Contracts. If it’s a franchise being sold, the franchisor’s permission is required. In the Franchisor Letter, the franchisor provides its written consent to the transfer.
- Promissory Note and Security Agreement. If the seller is providing financing, it will want documents that acknowledge the loan, establish a payment schedule and interest rate, and specify certain assets of the buyer as collateral.
- Letter to Escrow Agent for Release of Escrow. If the buyer’s deposit was placed in escrow at the term sheet or definitive agreement phase, both the buyer and seller will need to provide joint instructions for the escrow agent to release the deposit to the seller.
- A Post Closing Agreement acknowledges any additional obligations the parties may have after the closing. Sometimes a party is unable to satisfy one of the pre-conditions to closing prior to the scheduled closing date. Instead of delaying the closing, the parties may agree to provide a post-closing extension. For example, if a lien on the business assets will be paid off on the closing date with the proceeds of the closing, the buyer may give the seller fifteen days after closing to file the relevant UCC termination statements