Post-closing conditions: Overview, definition, and example
What are post-closing conditions?
Post-closing conditions are specific requirements or actions that must be met or completed after the closing of a deal, transaction, or agreement, typically in mergers, acquisitions, or other major business transactions. These conditions are usually outlined in the agreement and must be fulfilled for the deal to be fully finalized. Post-closing conditions can include actions like regulatory approvals, the transfer of assets, or the completion of certain legal or financial steps.
They serve to ensure that both parties live up to their obligations after the main deal has been concluded, often involving a final check to ensure all aspects of the transaction are in order and as agreed.
Why are post-closing conditions important?
Post-closing conditions are important because they protect both parties in a transaction by ensuring that all necessary actions are taken and that there are no overlooked details. They provide a safeguard, ensuring that the transaction meets all legal, regulatory, and financial criteria that may not have been possible to finalize before closing.
For the buyer, post-closing conditions may include ensuring that the seller delivers all agreed-upon assets or completes all necessary paperwork. For the seller, they might want to ensure that the buyer follows through on certain payments or approvals. These conditions can prevent disputes and offer a clear pathway to complete the deal.
Understanding post-closing conditions through an example
Imagine you’re buying a business, and the deal is set to close at the end of the month. However, the sale is contingent on several post-closing conditions, such as the completion of certain regulatory approvals or the transfer of intellectual property rights. After the deal closes, you may still need to take a few additional steps to finalize the transaction, like filing paperwork with government agencies or transferring customer contracts.
In another scenario, if the buyer discovers that the company’s inventory is lower than expected after closing, the purchase agreement may include post-closing conditions where the seller must adjust the price or provide additional compensation to address the discrepancy.
Example of a post-closing conditions clause
Here’s how a post-closing conditions clause might appear in a contract:
“The parties agree that, following the closing of this Agreement, the Buyer’s obligation to complete the transaction shall be contingent upon the fulfillment of the following post-closing conditions: (i) transfer of all intellectual property rights to the Buyer, (ii) delivery of all necessary regulatory approvals within 30 days, and (iii) adjustment of the purchase price based on final inventory assessment, if applicable.”
Conclusion
Post-closing conditions are essential for ensuring that a transaction is fully completed according to the terms set out in the agreement. They provide both parties with the opportunity to address any remaining steps or issues that may arise after closing. By clearly outlining these conditions, businesses can minimize risks and avoid disputes, helping to ensure that the deal is truly finished and all obligations are fulfilled. These conditions can be an important part of protecting both buyers and sellers in complex business transactions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.