Between signing the LOI and drafting the definitive purchase agreement, the buyer's attorney introduced aggressive representations and indemnities. How do we build our disclosure schedules to prevent post-close breach claims?

Question

Tyler Smith · Accepted Answer

The Letter of Intent outlines the commercial framework, but the definitive purchase agreement is where risk is transferred. Acquirers use expansive representations and warranties regarding operations, compliance, litigation, and customer relations to hold sellers liable post-close. If you fail to formally disclose an operational flaw, customer complaint, or employee dispute, the buyer can claw back escrow funds or withhold seller note payments after the transaction closes.

Your primary legal shield against this vulnerability is your disclosure schedule. Anything explicitly and accurately detailed in the disclosure schedules is considered known to the buyer and typically cannot form the basis of a breach of contract claim or indemnity demand. Do not treat the preparation of these schedules as a late-stage clerical exercise for outside counsel. Your leadership team must run a comprehensive audit across your business.

Dedicate a specialized Level 10 Meeting to review every draft representation against day-to-day operational reality. Use IDS to address every customer contract that has expired without formal renewal, every threatened customer dispute, every software licensing gray area, and every unwritten vendor agreement. If a customer expressed verbal dissatisfaction about delivery timelines in the last twelve months, disclose it. If an employee had a wage dispute that was resolved informally, document it. By over-disclosing operational imperfections directly in the schedules, you neutralize the buyer's ability to manufacture post-close breach claims while reinforcing the credibility of your management team.