Post-closing disputes can be costly issues that disrupt your business. They can occur after resources have been invested in a transaction, and they can have impacts that include increased expenses and the deterioration of business relationships.
Business transactions can be complex. This increases the risk of post-closing disputes that result from confusion related to the terms of an agreement. They can involve a large number of parties, which makes it even more difficult to achieve a mutually satisfactory resolution.
Avoiding these disputes at all costs can protect your business while ensuring that you achieve your business objectives. The following will help you understand post-closing disputes, when they occur, and how to prevent them.
Disputes in Mergers and Acquisitions
Post-closing disputes typically occur following mergers and acquisitions. They result from misconceptions and oversights that are made when parties focus too heavily on the rewards of a given transaction.
Once the transaction is finalized, concerns can arise that lead to disputes between two or more parties. These disputes must be addressed as quickly as possible in order to prevent damages to the businesses involved.
Clauses that include purchase price adjustments and earn-outs can cause post-closing disputes. In these cases, some portion of the payment is scheduled to be made in the future.
These payments can depend on future performance, which presents a number of risks that can lead to a number of disputes. Parties may interpret these clauses in their own way, causing confusion.
Accounting practices and revenue evaluation can differ between two parties and contribute to future issues.
Common Post-Dispute Issues
Some transactions include obligations related to the disclosure of information, non-compete clauses, and the solicitation of clients or employees.
Non-compete obligations related to the purchase of a business are enforceable in most states. This opens the door for future legal claims if a party has breached this or any other obligation.
Defining the terms included in a transaction can lead to confusion and disputes. Issues related to the definition of any elements related to a purchase price adjustment commonly leads to costly disagreements.
Conflicts can arise between employees and the management team of the acquiring business. In some cases, the removal of employees can lead to litigation.
Preventing Post-Closing Disputes
Although the provisions of a contract can lead to these disputes, they can also be used to protect all parties.
Funds can be set up to help address any potential expenses that may arise from the selling of a business. This can also be an invaluable resource when having to undergo legal proceedings for post-closing disputes.
More importantly, each party must take the time to perform their due diligence. Hiring third parties to evaluate business transactions can prevent disputes from arising down the line.
In addition to mergers and acquisitions, post-closing disputes can arise with any purchase of assets. They involve breaches of contract, violations, and fraud among other issues.
Indemnification clauses, earn-out clauses, and working capital adjustments are just some of the elements that come into play during post-closing disputes.
These disputes can occur in a variety of industries, and working with a skilled legal team can help you address disputes and prevent costly expenses. Knowing when these disputes can happen and preventing them early is essential to your industry success.