Mergers and sales

In an asset sale the buyer purchases specified assets and assumes only the liabilities it agrees to, leaving the rest with the seller’s entity. In a stock or membership interest sale the buyer acquires the entity itself, and everything comes with it — including liabilities nobody has discovered yet. Buyers generally prefer asset sales, sellers generally prefer equity sales, and the tax consequences usually differ enough that the choice should be modeled with your CPA before terms are agreed.

Before signing the letter of intent, and ideally before you begin talking to buyers. Owners routinely bring counsel in at the purchase agreement stage, which is late — by then exclusivity has been granted and the economic terms have been anchored in a document you signed. The earlier work is also cheaper, because preparing clean records ahead of diligence costs far less than repairing problems a buyer finds mid-deal.

For a privately held company, commonly three to nine months from signed letter of intent to closing, with diligence and financing driving most of the variability. Deals slow down for predictable reasons: incomplete corporate records, contracts that require third-party consent to assign, unresolved ownership questions, and tax matters. Most of those are fixable in advance.

An earnout defers part of the purchase price and conditions it on the business hitting agreed targets after closing. It can bridge a genuine disagreement about value. The risk is that you no longer control the business being measured, so everything depends on how precisely the metric is defined and what the buyer is contractually required to do — and not do — during the earnout period. A vague earnout is frequently a discount disguised as a payment.

They are the seller’s factual statements about the business — that the financials are accurate, that there is no undisclosed litigation, that the company owns what it claims to own. If one proves false, the buyer has a claim, usually satisfied from escrow. Negotiating their scope, the survival period, and the indemnification caps and baskets is where a substantial share of a seller’s post-closing risk is actually decided.

It varies with deal size and risk, and it is genuinely negotiable rather than fixed by custom. What matters as much as the percentage is the release schedule and what claims may be made against it. A smaller escrow released quickly can be worth more to a seller than a larger one held for years, and the survival periods for the representations should line up with the escrow term rather than outlasting it.

Not usually at the outset, and most sale processes run confidentially until the deal is reasonably certain. The tension is that key employees are often central to what the buyer is acquiring, and buyers frequently want them retained or under agreement before closing. Timing this well — late enough to avoid disruption, early enough to secure the people the deal depends on — is worth planning deliberately rather than reacting to.

It depends on structure. In an equity sale the debts stay with the entity the buyer is acquiring, though lenders often have change-of-control rights that require consent or repayment. In an asset sale, liabilities remain with your entity unless the buyer expressly assumes them, which means the payoff typically happens at closing out of proceeds. Personal guarantees deserve particular attention: they do not disappear because the business changed hands, and releasing them requires the lender’s agreement.