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Whaddya Wanna Know?

Getting disclosure schedules right matters

One of the more challenging aspects of selling your business comes in the disclosure documents. This is where you affirmatively identify key aspects of your business for the benefit of the buyer. Most importantly, you, as the seller, are expected to identify the things you know (or should know) about how your business functions, potential risks, what is owned/not owned, etc. This is why getting disclosure schedules right matters.

When working with experienced advisors, like Fulham Partners, completing the disclosure schedules can be a much smoother and less challenging process. A good starting point is the list of typical disclosures requested shown below. The specifics of what to include may differ (and is often signalled during due diligence), but gathering the baseline information in advance is a wise move.

Here is a list of the most common disclosure schedules requested:

  • Consents and approvals: identifies any and all consents and approvals needed by both the buyer and seller (from the respective boards/members and governmental or regulatory agencies, for example) with documented proof that those consents and approvals have been affirmatively received

  • Financial statements: the profit and loss (P&L) statements and balance sheets for a historical period of time and currently as of a specified date at or prior to closing

  • Intellectual property: trademarks owned or in use and whether they are registered or unregistered, patents, significant copyrights, formulas, documented know-how, licenses (as the licensor and as the licensee), domain names, etc.

  • Contracts: with customers, vendors, leases and any other third-parties and whether those contracts are being assigned to the buyer or require any specific consents or permissions to be assigned

  • Material customers: generally a list of the top 20-50 customers by revenue or a list of customers meeting some minimum revenue threshold

  • Material vendors: like material customers, it is generally a list of the top vendors identified by the amount spent with them; it may also include any critical vendors providing products or services that are not easily replaced

  • Labor and employment matters: this usually includes a list of current employees, employment dates, compensation, whether they are full- or part-time, bonus plans, commissions, etc.

  • Employee benefit plans

  • Permits: specifically, those permits that are required to conduct business (state tax, land use, etc.)

  • Taxes: you will be required to identify all of the various taxes the business is required to file and pay and provide evidence that those filings have occurred and payments made (where applicable); this will include providing historical tax returns

  • Litigation: any and all pending and prior litigation, status and results (including any employment claims for wrongful termination, discrimination, harassment, etc.)

  • Insurance details: specifically identifying the insurer(s), policy number(s), type(s) and amount of coverage, respective coverage period, any retroactive adjustments and any other items that may be necessary to properly document the insurance that is in place

This is by no means an exhaustive list. It is, however, a great place to start when you have a fairly high assurance that the sale of your business will close. And getting disclosure schedules right matters because they will be tied to the representations and warranties in the purchase agreement and therefore tied to any indemnity escrow amount.

In other words, you need to be as thorough and specific as possible within the scope of the representations and warranties. It is also critical that you have input from the right people on your team when completing the disclosure schedules so that nothing is missing.

As always, it is imperative that you consult all of your advisors (attorneys, CPAs, insurance representatives, etc.) throughout this process to ensure proper compliance and accuracy.

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