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How to properly close a purchase and sale transaction

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How to properly close a purchase and sale transaction

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When a corporation has engaged in a merger or acquisition the parties will want representations from one another stating that all the agreements and other documents embodying the transaction have been “duly authorized, executed, and delivered.” In practice this means the parties want assurances that all the requirements of applicable corporate law and bylaws of the corporation have been met. To address these concerns a legal opinion is often rendered. A legal opinion is a letter from one party’s attorney to the other discussing legal matters related to the transaction. Matters frequently discussed include: 1) the legal status of the assets or entity being sold, 2) title and authority to engage in the transaction, 3) the absence of legal and contractual restrictions on the transaction, 4) compliance with federal and state law, and 5) the enforceability of the transaction documents. Upon these representations resolutions approving the agreements have become standardized, which makes delivery of a legal opinion a condition to closing.

Following the legal opinion, a resolution is put to the Board of Directors for approval. The resolution approving the agreement should clearly identify and approve the agreement and the transactions the agreement contemplates. Moreover, it must state the purpose of the transaction and authorize the proper officers to review, execute, and deliver the agreement. Since resolutions and the minutes in which they appear are often the only evidence of the board’s action it is important these steps are adequately supported by the legal opinion. Failing to comply can cause unnecessary delays.

Finally, standard at every closing is the Secretary and Officer’s certificates. These certificates should not be controversial. The Secretary’s certificate verifies to the other party that the appropriate corporate officers to make the transaction binding on the party have followed correct corporate procedures. However, if something wrong is discovered the party relying on the certificate has a claim for breach of contract. On the other hand, the Officer’s certificate is only needed when the signing of the agreement and closing are not simultaneous. In essence, the Officer’s certificate states that the representations and warranties made in the purchase agreement are true and correct as of the closing date. Sometimes, events occur that require a change in the representations made at closing from those made at the signing. When this occurs it is common to prepare an amendment to the agreement. More likely though, there would be an officer’s certificate that would also refer to any representations and warranties made in the amendment.