CBB CBB Transaction Management & Due Diligence 3

Question 1

What is the significance of 'representations and warranties' in a purchase agreement?

Accepted Answer

They are legally binding statements about the business's condition that expose the seller to liability if false

Answer

Representations and warranties are factual assertions by the seller that, if proven false, can result in indemnification claims by the buyer.

Question 2

Which party typically holds funds in escrow at closing in a business sale?

Accepted Answer

A neutral third-party escrow company or attorney

Answer

An escrow agent holds purchase funds and releases them only when all closing conditions are satisfied, protecting both parties.

Question 3

What does 'working capital adjustment' typically address in a business sale closing?

Accepted Answer

Ensuring the business is delivered with a normalized level of current assets minus current liabilities

Answer

A working capital adjustment ensures the buyer receives a business with enough operating liquidity, not stripped of cash or inventory.

Question 4

What is a 'bill of sale' in a business transaction?

Accepted Answer

A legal document transferring ownership of business assets from seller to buyer

Answer

A bill of sale is the primary closing document that formally conveys ownership of the business's assets to the buyer.

Question 5

Why is it important to obtain UCC lien searches during due diligence?

Accepted Answer

To confirm the business has no outstanding secured claims against its assets

Answer

UCC (Uniform Commercial Code) lien searches reveal whether creditors have secured interests in the business's assets that could affect the buyer.

(CBB) Certified Business Brokers Practice Test