Another aspect of the compensation provisions, which requires significant negotiations, is the way compensation is funded. If a sales contract is silent, the buyer should act directly against individual sellers because of its prejudice. Buyers generally do not like this remedy, because there is no guarantee that sellers have the money to fulfill their compensation obligations after closing and going directly against the seller can be a lengthy lawsuit. In order to ensure that the buyer will be able to recover his damages in an effective manner over time, he will often negotiate in advance where the funds for identifiable claims come from. The three most common approaches to financing compensation are: (1) a receiver`s compensation account, (2) compensation for future payments and (3) withholding tax on the purchase price. This article analyzes the main terms and conditions of sale of a business sale and the rules that affect the date and final payment of the purchase price. This article also verifies the responsibilities of the parties after the deal is concluded, so that sellers can anticipate what the buyer will likely ask for and how to negotiate from a position of strength. It is important that sellers keep in mind that almost all of the items described here have been designed to assign risk. Buyers want to get the value they expect from buying the business and assign risks to the seller if there is an unexpected barrier to the transition to a new owner.
Sellers want to avoid the risks associated with the business after closing and keep as much of the full purchase price as possible. Ideally, sellers will want to do as little basic RW as possible; The objective is (i) to limit the seller`s final exposure to a handful of statements that the seller generally makes and (ii) to limit the remainder of his overall liability to the amount of compensation. Sellers can be creative in reducing the number of fundamental representations they need to make by working with buyers to find other ways to reduce buyer risk and seller liability; For example, studying insurance options can be a sound strategy. Compensation cap. While the compensation threshold sets the minimum amount of injury suffered by a buyer before the seller is liable, the compensation limit limits the maximum amount that the buyer can recover due to a seller`s violation of the RW. The compensation cap is often a highly negotiated provision because it limits the risk to the seller and, conversely, increases the cost to the buyer of the most costly infringements to sellers. For basic presentations, the compensation limit generally corresponds to the company`s total purchase price. For non-fundamental representations, the compensation cap is generally a fraction of the final value. Adapting the compensation cap to the amount of fiduciary deduction can bring benefits to both parties: the purchaser is not obliged to recover funds directly from the seller; and, with the exception of the breach of a basic representation, the funds paid to the seller at the close are not threatened.