The acquisition entity buying our business is a newly formed Delaware LLC shell with zero assets other than what they are acquiring from us, and the buyer wants us to carry a twenty percent seller note. How do we secure our seller financing when the operating buyer has no parent company balance sheet?

Question

Tyler Smith · Accepted Answer

Carrying a seller note against a newly formed special purpose vehicle (SPV) leaves you entirely exposed. If the operating business stumbles under new leadership, the SPV has no independent capital reserves to cure a debt service default, and the buyer's parent fund or principals face zero legal liability for the unpaid principal. You effectively act as an uncompensated equity risk partner without controlling the business.

Your first line of defense is demanding an unconditional parent company guaranty or a personal guaranty from the controlling sponsors. If the private equity firm or search fund refuses an entity-level guarantee due to their fund charter, you must secure the note with a first-priority equity pledge of one hundred percent of the membership units in the buying entity, subordinated only to approved senior bank debt.

The equity pledge agreement must include an irrevocable, pre-executed voting proxy. In the event of an uncured payment default or covenant breach, this proxy allows you to immediately step into the ownership role, vote the shares, replace the board, and reclaim operational control of the company before the asset is run into bankruptcy.

Additionally, write strict negative covenants into the loan agreement. Prohibit the SPV from paying management fees, issuing owner dividends, executing intercompany transfers, or incurring additional indebtedness until your seller note is paid in full. Require quarterly financial statements verified under your historic accounting standards. If the acquiring shell defaults, your legal instruments must give you instant standing to reclaim the operating engine before its enterprise value is permanently destroyed.