Always a festive moment the signing of the purchase agreement at the notary. Afterwards there is a toast to the deal and the future: the business acquisition is a fact!
Seller and buyer discussed all the wonderful aspects of the business, but also the risks of the business transfer. Seller thought those risks might not be too bad. After all, within the company, everything was running smoothly.
Nevertheless, the buyer wanted to obtain a number of guarantees regarding the business to be purchased from the seller. The proud seller provided the requested warranties without protecting himself and seeking legal advice.
Some time after the company's shares were transferred, a guarantee provided by the seller turned out to be incorrect in practice after all. The seller was requested to compensate the damages suffered by the buyer in that regard. Several years had already passed after the business acquisition. Surely the seller cannot be sued after years for damages suffered by the buyer on the basis of a guarantee?
Legal adviser
The answer to that question depends heavily on what the seller and buyer have agreed upon and recorded with each other in a purchase agreement. Perhaps the part of the acquisition where the agreements were recorded in a written purchase agreement felt like unnecessary paperwork and the least exciting for this seller and buyer.
Make no mistake, this can be the most exciting part of the acquisition afterwards if it turns out that some things were not written down correctly. It is therefore highly recommended that the seller and buyer seek the assistance of an (in-house) legal adviser specialized in contract law and corporate law with experience in business acquisitions.
Only when agreements are correctly recorded and both seller and buyer are made aware of the possible consequences of those agreements, a lot of misery after the business acquisition can be prevented.
Warranties and/or indemnities
Too often it happens that purchase agreements contain warranties that should not have been issued by the seller or that the seller's liability for breached warranties is not limited in time or money.
It is common in a purchase agreement for the seller to provide certain warranties and/or indemnities regarding certain aspects of the business. The seller will state in the purchase agreement that these warranties are accurate on the acquisition date. Should it turn out at any time after the acquisition that a warranty was nevertheless incorrect, the seller will (may) be held liable by the buyer for the damages associated with the breach.
So it can just happen that some time after the acquisition, the buyer "knocks on the seller's door" and wants to be financially compensated.
Limitation of liability in time or money
If the purchase contract does not include a limitation of liability in time or money, liability for warranties is in principle issued for an indefinite period and amount. The law then also does not provide a concrete limitation of liability in time or money.
The moment the law has to be invoked, so-called open standards have to be interpreted on the basis of the circumstances of the case. In other words, there is then much room for discussion and thus uncertainty for both seller and buyer.
Sounds like a bell
In practice, unfortunately, I often see sales contracts that are inadequate. These agreements are usually not drawn up by lawyers or lawyers specialized in business acquisitions.
It is in the interest of both seller and buyer that the legal documentation regarding an acquisition sounds like a bell, so that they can toast the success of the business acquisition without getting a bad aftertaste.
