Appendix D: List of Closing Documents

Supporting documents are attached to the purchase agreement as schedules or exhibits and include the following:

• Allocation of the Purchase Price: This document breaks down the purchase price into separate asset classes for IRS purposes. The tax implications for asset and stock sales can be substantially different and vary based on how the purchase price is allocated among the assets. 
• Assignment of Contracts: This document transfers third-party contracts from the seller to the buyer upon closing. These include advertising, equipment leases, lease agreements, and other third-party agreements. 
• Assignment of Intellectual Property: This exhibit transfers any registered intellectual property from the seller to the buyer, such as patents, trademarks, or other intellectual property. It can also transfer non-registered intellectual property, such as phone numbers, websites, and content.
• Assignment of Shares (for a stock sale): This document transfers shares of the entity and is used for stock sales only.
• Bill of Sale (for an asset sale): This is the actual document that transfers possession of the assets at the closing in the case of an asset sale. The bill of sale should list all tangible and intangible assets included in the sale. I do not recommend stating values for each asset. Some advisors list intangible assets separately and transfer them using a separate set of exhibits. Titled assets such as vehicles and real estate must be transferred separately.
• Buyer’s Disclosure Statement: This further reduces your liability post-closing for any disclosures the buyer may not have made. This is replaced by a more thorough set of representations and warranties for larger transactions.
• Closing Adjustments and Prorations: For smaller transactions, multiple adjustments and prorations must often be made (lease payment(s), utilities, personal property taxes, accounts receivable, etc.) at the closing to account for timing differences between when bills are paid and when a change of possession occurs. 
• Consulting, Employment, or Independent Contractor Agreements: The independent contractor agreement is necessary if the seller is to continue working for the buyer in some capacity, although it can also take the form of a consulting or employment agreement.
• Corporate Resolution: A corporate resolution is required in an asset sale if the seller is an entity and is selling a majority of the assets of the company. Technically, the seller in an asset sale is the entity (corporation or LLC), and a corporate resolution is typically required in the corporate bylaws for taking major actions, such as selling all assets of the company. This resolution is not required if the seller is selling the entity, such as in a stock sale.
• Deed of Sale of Entity (if selling the entity or stock): This document is required if the seller is selling the shares in the entity.
• Lease Assignment: The assignment of the lease transfers the lease for the premises. The seller usually remains as a guarantor for the lease until the lease expires. This document must be signed by the landlord; however, it is not necessary if a new lease is created.
• List of Assets: This is a detailed list of all tangible and intangible assets included in the sale. Although it isn’t necessary for stock sales, it’s wise to be clear on which assets are owned by the corporation or LLC and are included in the price, and which assets may be personal and are not included in the price. Doing so can help prevent litigation regarding which assets were included in the sale.
• List of Titled Property: This includes a list of titled property, such as real estate or vehicles included in the sale. Titled assets require a separate set of transfer procedures.
• Non-Competition Agreement: The non-competition agreement contains a description of what the seller may and may not do, and specifies the length of time the agreement stands. Almost all sales include a non-compete agreement. Sometimes, this agreement is included as a clause in the purchase agreement, and sometimes, it’s listed as an exhibit. The non-compete agreement should be voided if the buyer defaults on payments to the seller.
• Promissory Note: An agreement used if the seller is financing a portion of the sale in which the buyer (the note issuer) promises to pay the seller (the note’s payee) the sum and interest specified in the note.
• Release of Holdback: Savvy buyers will request that a percentage of the purchase price be held in escrow until the training period is complete. In some middle-market transactions, this amount can be held in escrow for up to 6 to 24 months to cover any additional unknown variables, such as customer warranty claims, gift certificates, and others. This typically varies from 5% to 20% of the purchase price.
• Security Agreement: A document that provides the seller a security interest in the assets of the business, which are pledged as collateral until the seller note is paid in full. The security agreement accompanies the promissory note. 
• Seller’s Disclosure Statement: A written statement made by the seller regarding any material adverse conditions of the business that the buyer should be aware of to prevent potential litigation. The seller’s disclosure statement is replaced by representations and warranties in larger transactions.
• Share Pledge Agreement (if the seller is financing the stock sale): A document that provides the seller a security interest in the shares of the entity until the seller note is paid in full. A share pledge agreement is used in stock sales in lieu of a security agreement in an asset sale.
• Training Agreement and Log: This document spells out the seller’s agreement to train the buyer. Logging the completion of the training period is also a good practice to prevent potential future litigation. Having the buyer sign off on the training when it’s complete can prevent future legal disputes. If you fail to do this, the buyer could refuse to make payments later, offsetting the note by claiming you failed to train them properly.
• Uniform Commercial Code (UCC) Financing Statement: This is a form that the seller files with the local or state governmental authority that allows the seller to give notice to the public that they have a security interest in the property listed in the filing (i.e., the assets of the business) until the note is paid in full. A UCC-1 is used to record the lien. A UCC-3 is filed to record a change of information in the original filing. Most UCC liens must be renewed periodically every few years to remain valid.

Important: The list above is in no way complete. It simply represents the typical documents and steps required to close. Only an experienced professional should handle your closing. The list above is provided for illustrative purposes only.