Closing may occur in either of two different deal structures. An acquisition involves the purchase of assets, but the purchase agreement may reflect a purchase of shares or the purchase of assets. The owner could continue running and managing the business as he or she had prior to the acquisition, with no change to the legal structure of the business entity; the employees, suppliers and customers do not need to change agreements, and there is no need for a third-party consent for transfer of contracts.
In a share purchase agreement, the seller removes him or herself from the business entirely, enabling the purchaser to step in directly and take over operations. The business is able to proceed without interruptions. Everything is acquired, to include the whole company being transferred over to the buyer. This is favorable to the seller because of tax treatment on a share purchase and because all current and past liabilities carry over to the buyer.
Acquirers typically prefer an asset purchase agreement. It enables the seller to purchase precisely what he or she wants, and excludes certain known and unknown liabilities from past operations. Because sellers prefer Share Purchase Agreements, the Asset Purchase Agreement typically involves a higher purchase price. Tax consequences are typically less favorable to sellers than Share Purchase Agreements.
the final stage of the transaction where the buyer and the seller formally complete the sale. It is the point at which ownership of the target company is officially transferred from the seller to the buyer, and the agreed-upon terms of the deal are executed.
Key Steps in the Closing Process:
- Final Legal and Financial Step: Closing marks the point where all legal and financial obligations are fulfilled, and the deal is legally binding. From this point on, the buyer assumes control of the company and all associated rights and obligations.
- Deal Certainty: Until closing, the deal remains subject to change based on conditions like financing, regulatory approvals, and other contingencies. Closing ensures that the acquisition is finalized and that both parties are committed to the agreed terms.
- Transaction Documents: All necessary documents, including the purchase agreement, disclosure schedules, consents, and other legal documents, are reviewed, finalized, and signed by both parties. This includes the completion of any required regulatory filings or approvals.
- Payment: The buyer transfers the agreed-upon purchase price (or other forms of payment, such as stock or a combination of cash and equity) to the seller, as specified in the acquisition agreement.
- Transfer of Ownership: The ownership of the company is officially transferred to the buyer, which may involve the change of ownership in corporate documents, such as stock certificates, membership interests, or other equity instruments.
- Assumption of Liabilities: If part of the deal involves assuming certain liabilities (such as debt), these obligations are formally transferred to the buyer as well.
- Post-Closing Conditions: If there are any conditions or actions to be completed after the closing (such as the release of escrow funds, implementation of earn-outs, or other post-closing adjustments), these are addressed according to the terms of the purchase agreement.
- Transition and Integration: After the closing, the buyer typically begins the process of integrating the acquired company into its operations, aligning systems, and ensuring the smooth transition of management, employees, and customers.
Closing is a significant milestone in the acquisition process, as it marks the completion of the transaction and the beginning of the buyer’s control over the target company. During the Post-Sale Transition,you will need to Prepare Transition Plans: Define the handover process for leadership, employees, and customers. Depending on the deal terms, you may remain involved in the business temporarily to:
- Ensure a smooth transition.
- Train the new leadership team.
- Support key customer and employee relationships through the transition period.
- Continue with your role or your new role
- In addition, be prepared to spend a lot of time help[ing the new owners understand all of the institutional knowledge that currently resides only in your head.
