After the deal to sell the seller’s shares in the target company (“Target”) has completed and all signed documents relating to the deal have been dated (“Completion Documents”) the legal advisors to the seller and the buyer are required to document and deal with post-completion obligations on behalf of their respective clients which are set out under the share purchase agreement (“SPA”) or are required to under company law.
What happens to the Completion Documents?
As most deals complete over the phone, the seller’s legal advisors will organise the seller’s Completion Documents and send them to the buyer’s legal advisors with an electronic version of the same. The seller’s legal advisors will expect the buyer’s legal advisors to send the buyer’s signed and dated documents and an electronic version so that each party holds the other party’s signed original documents and electronic versions.
When do the Completion Documents need to be sent?
One of the documents within the Completion Documents will be the stock transfer form which confirms the transfer of the legal ownership of the shares being sold from the seller to the buyer. If stamp duty is payable on the purchase price (the threshold being a purchase price of at least £1,000 unless exemptions apply), it needs to be paid to HM Revenue and Customs (“HMRC”) within 30 days of the date of its execution and as a result the seller’s legal advisor needs to send the Completion Documents to the buyer’s legal adviser as soon as possible so that the buyer does not incur a penalty from HMRC which the buyer is likely to expect the seller to compensate him/her for in the event of a delay leading to a penalty.
Are there any other post-completion obligations that the seller must fulfil?
It depends on the deal. In deals where the seller has been fundamental to the running of the Target’s business (“Business”), there may be a fixed period set out in the SPA where the seller continues to work for the Target to ensure there is a form of continuity in the Business.
Won’t there be issues with the seller’s motivation?
Where the seller works on the Business for a fixed period post-completion the buyer may offer a mechanism by which the seller is rewarded for achieving post-completion performance metrics for one of two reasons(“Earn-Outs”):
(i) to incentivise the seller to continue to be motivated for the success of the Target; or
(ii) because the buyer needs to have proof that the Target’s performance (as projected) can be delivered.
This is a way of ensuring that the higher purchase price offer is only paid if performance is subsequently achieved. The Earn-Outs may see the price paid at completion (“Completion Payment”) increase if the seller hits those performance metrics but the mechanism of calculation can be open to manipulation and the seller should not rely on the full payment of any projected earn-out payment.
How are the metrics measured?
Usually by reference to accounts that are prepared as at the end of the agreed Earn-Out period. These accounts will form the basis of ascertaining the total purchase price payable under the SPA.
Is there anything that the seller must not do after completion?
Most SPAs will include restrictions on the seller to not compete with the Target and to not solicit any clients, suppliers or employees from the Target for an agreed period (usually between 12-36 months). The seller and the buyer may agree to keep the terms of the deal confidential unless the buyer is keen to publicise the acquisition in which case the buyer may negotiate that ability as part of the negotiation of the SPA.
What does the seller need to do in relation to the publicity?
Where the seller and buyer have agreed that there will be promotional activity about the deal, the broad terms of what will go into the press release and any aspects that are not to be publicised (such as an agreement to not publicise the purchase price) will be agreed pre-completion. The seller may want to approve the buyer’s final press release, whilst being reasonable as to its content, before it is circulated to the media.
Anything else the seller should be aware of?
The Target’s website and social media accounts are likely to be password protected and the login details are usually provided by the seller immediately post-completion. Although the bank where the Target holds its bank account are likely to be aware of the proposed deal, it is likely that formalities to change the signatories to the bank mandates will need to be completed as soon as possible post-completion.
Need assistance?As with all legal aspects connected with the sale of a business post-completion matters should be dealt with by a suitably qualified legal professional.
This article is not intended to be interpreted as advice. If you would like any assistance in relation to your proposed sale please contact our specialist corporate team on 0151 305 9650 or email email@example.com.