CBB Transaction Management & Due Diligence Flashcards

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

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

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

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

Answer: A neutral third-party escrow company or attorney

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

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

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

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

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

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

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

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

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

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

Which term describes the period after signing a LOI during which the buyer has exclusive rights to negotiate with the seller?

Answer: No-shop period

A no-shop period prevents the seller from entertaining other offers while the buyer completes due diligence and negotiates final terms.