Buying or Selling a Closely Held Business in Cincinnati: Legal Issues That Can Delay Closing and How to Avoid Them

Any time you are buying or selling a closely held business, there are a variety of legal issues that can delay—or, in some cases, threaten—closing. But, it is generally possible to avoid these issues with an informed approach. If you go into the process with a clear understanding of what it takes to get to the closing table on time, you can minimize the risk of issues standing in the way of closing the deal.

Buying or selling a closely held business is a legal process that involves risks for both parties. Not only can both parties face risks after closing (though they can mitigate these risks during the dealmaking process), but issues arising prior to closing can pose risks as well. In many cases, concerns about previously unidentified risks can delay closing—and, in some cases, they can jeopardize closing altogether.

To avoid unnecessary delays, buyers and sellers can (and generally should) take a proactive approach focused on gathering the information they need to make sound decisions well before their scheduled closing date arrives. If their efforts to gather information uncover issues that warrant action, taking appropriate action promptly will help facilitate an amicable resolution that keeps their deal on track for a timely closing.

What Are Some Examples of Legal Issues that Can Delay Closing?

Various legal issues can lead to delays in closing. Even if the parties’ purchase agreement does not expressly provide for contingencies, issues that raise significant legal or financial concerns can lead to pre-closing disputes that threaten to delay or derail closing. While every deal is unique, some examples of potential issues include:

Third-Party Consents

Business sales often require consent from lessors, lenders, key suppliers and various other third parties. If a third party refuses to provide its consent, this can result in a delay that is beyond the parties’ control.

Liens and Levies – Liens and levies uncovered during the due diligence process can also lead to delays as the parties work to find a way to move forward without encountering issues with third parties or unduly shifting liability from one party to the other.

Questions About Intellectual Property (IP) Rights

Likewise, if it is unclear whether the seller owns the intellectual property (IP) rights in the business’s trademarks or other key assets, this can lead to delays as the parties sort out ownership and determine what the seller has the right to assign as part of the deal.

Financing Issues

If the buyer runs into financing issues during the pre-closing process, this can lead to delays as well. From additional lending requirements to changes in the buyer’s financial condition, various issues can potentially arise.

Legal and Regulatory Risks

From employment practices liability to environmental compliance concerns, various legal and regulatory risks can also come to light during the pre-closing process. If the buyer is at risk of facing liability as a result of the seller’s actions (or inaction) prior to closing, this could also lead to delays as the parties attempt to work out a mutually agreeable path forward.

Again, these are just examples. A wide range of other issues can (and do) lead to closing delays as well. Even when the parties have a shared interest in getting to closing on time, these kinds of issues can force delays as the parties reevaluate their options—and, in some cases, reevaluate the overall desirability of continuing to move forward.

What Can (and Should) Buyers and Sellers Do to Avoid These Kinds of Issues?

With these kinds of issues in mind, what can (and should) buyers and sellers do to mitigate their risk of experiencing unanticipated closing delays?  

As with all types of business transactions, when pursuing an acquisition, taking an informed and proactive approach is key for both parties. To help minimize their risk of facing unanticipated challenges, buyers and sellers can:

• Conduct a comprehensive risk assessment before entering into a purchase agreement. If this risk assessment uncovers issues (i.e., the need for third-party consents) that require time and attention, the parties can address these issues proactively before committing to a closing date that they may or may not be able to meet.
• Anticipate and proactively address issues and unknowns that will require time to resolve. From the seller’s outstanding liabilities to the buyer’s financial standing, both parties should have a list of potential concerns that they will work through as they work toward putting a deal framework in place.
• Do not leave issues unresolved if they have the potential to threaten the deal. While certain issues can be deprioritized during the dealmaking process, any issues that have the potential to threaten the parties’ deal should be addressed sooner rather than later.

FAQs: Avoiding Closing Delays When Buying or Selling a Business in Cincinnati

How can I avoid closing delays when buying or selling a business?

Avoiding closing delays when buying or selling a business involves taking a proactive approach to identifying and addressing all potential legal and financial hurdles. While it may not be possible to completely eliminate the risk of a delay, this risk can be substantially mitigated in most cases.

What should I do if an issue threatens to delay (or derail) closing?

If an issue threatens to delay (or derail) your sale or acquisition of a closely held business, you should discuss the issue with your legal counsel promptly. In this scenario, addressing the issue promptly will help provide the best chance of achieving a favorable resolution that keeps the deal on schedule.

What happens if a buyer or seller refuses to close an acquisition as scheduled?

If a buyer or seller refuses to close an acquisition as scheduled, the legal implications depend on the terms to which the parties have agreed. If the buyer’s or seller’s refusal amounts to a breach of contract, then legal action may be warranted.

Speak with a Cincinnati Business Lawyer at Rendigs in Confidence

If you have questions about what you can (and should) do to avoid unnecessary issues during a business sale or acquisition in Cincinnati, we invite you to get in touch. Call 513-381-9200 or contact us online to arrange a confidential initial consultation.