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What happens to liabilities when you sell your company / check out concierge program- click here
January 28, 2019
What happens to liabilities when you sell your company?  
          What happens to liabilities when you sell your company?  I suppose it’s a question you think the buyer is most concerned with, especially if the buyer doesn’t expect to be responsible for any of the seller’s debts.  But sellers have legitimate concerns also, particularly when the buyer is assuming certain liabilities.  Buy-Sell agreements need to be carefully drafted to ensure that every contingency is covered and the intention of the parties is clearly set forth in the written agreement.
          That’s a mouthful.  The first issue we should dispense with is, do you need a written agreement?  How about a handshake?  OK, I admit it, there aren’t many alarm guys out there that think a handshake is enough.  But there are plenty alarm owners out there that think their nephew just out of law school, or some yoyo recommended by some other yoyo [that often includes a buddy who sold his company or the accountant or even the broker] can handle the deal sufficiently.  Too bad that’s not usually the case, especially if we define “sufficiently” as each side getting what they expected and no dispute or litigation follows the closing, assuming the deal gets that far.  
          I digress.  The typical Asset Purchase Agreement, APA, makes the general statement that the buyer is assuming no obligations or liabilities of the seller.  It’s a good way to say it.  But there are some obligations that will be assumed and they need to be carved out of the general statement.  First and foremost, the buyer must assume the subscriber contracts, agreeing to perform all obligations the selling alarm company agreed to perform.  This is essential to the seller if the seller has given a guarantee of the accounts, which is also typical in an APA.  If the seller is giving a guarantee of the account it stands to reason that the seller is going to want, to expect, the buyer to assume and perform all subscriber contract obligations.  That can mean finishing an installation, performing RMR services, such as inspection, repair service and monitoring.  
          There may be other obligations the buyer is expected to assume.  If the sale includes licenses held by the seller or other contract rights that are transferable, such as distributorship rights, vehicles that are not free of liens or leased equipment used in connection with the seller’s business, the buyer may want these items and the contract may require the buyer to assume these obligations.
          There may even be deals where the buyer assumes certain trade debt of the seller, in which case the seller would credit the buyer against the purchase price, or the parties would have included that assumption of debt as part of the consideration going to the seller.  For example, if the seller is indebted to the central station the buyer may assume that debt.  Buyers will usually insist that the seller pay off all debt because the buyer doesn’t want to risk the seller’s creditors looking to the buyer post-closing.  By the way, a buyer need not worry that a seller’s creditors will sue the buyer if the buyer has paid a fair market value for the seller’s assets.  Of course a buyer could be sued, but the buyer would prevail as a good faith purchaser.  That assumes the creditor doesn’t have a lien on the assets, in which case the secured creditor can look to recover the sold assets covered by the lien.
          Have I lost you yet?  Have I convinced you that you need a lawyer to handle the buy-sell transaction?  The thing is that there are lots of issues that have to be addressed in the APA for an alarm transaction.  Not many lawyers have handled more than one such transaction, and for most, your deal will be the first and last.  Not a good idea.  A good idea would be to have your “house counsel” oversee and handle the transaction.  O, you don’t have a house counsel? Well you could have, for $4.37 a day.  Like having your house counsel in the office next to yours, in the yelling zone.  Check out our new Concierge Program for the alarm industry at

    Check out our CONCIERGE LAWYER SERVICE FOR THE ALARM INDUSTRY PROGRAM. I hope you decide to join. I promise we will make it worthwhile.  We want you to think of K&K as your attorneys and we hope to meet your every expectation.  Participation is limited so don't delay.  Now you can afford to have K&K on retainer and available when you need us.
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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301
516 747 6700