What are Disclosure Schedules?
The Short Answer
Disclosure Schedules explained simply
When you buy or sell a business, the main agreement (like an Asset Purchase Agreement or Stock Purchase Agreement) includes promises from the seller about the business. These promises are called "representations and warranties." They cover things like the business owning its assets, having no hidden lawsuits, or its financial statements being accurate.
Disclosure Schedules are separate documents that go with the main agreement. They list any exceptions to these promises. For example, if the seller promises there are no lawsuits, but there is one small ongoing case, that case would be listed in a Disclosure Schedule. This way, the buyer knows about it upfront and can’t claim later that the seller hid information.
Think of them as footnotes to the main contract. They provide important details and prevent misunderstandings or future disputes by making everything transparent.
Real-World Example
The Software Company Sale
Imagine a software company being sold. The purchase agreement states that the company owns all its intellectual property. However, one small piece of software code was developed by a contractor who retains a limited license to use it.
Instead of changing the main agreement, the seller would include a Disclosure Schedule. This schedule would specifically list that particular software code and the contractor's limited license. This way, the buyer is fully aware of this detail before closing the deal.
Why this matters
Disclosure Schedules are crucial for both buyers and sellers. For buyers, they provide a complete picture of the business, highlighting any potential risks or issues that might not be obvious from the main agreement. This allows buyers to make informed decisions and adjust the deal terms if necessary.
For sellers, they protect against future claims. By disclosing all relevant information, sellers can avoid accusations of misrepresentation or fraud after the sale. They ensure that the buyer cannot later claim they were unaware of a specific issue that was properly disclosed.
Always review Disclosure Schedules carefully. They often contain critical information that can impact the value and risk of the deal. Don't just skim them; understand every detail.
Always review Disclosure Schedules carefully. They often contain critical information that can impact the value and risk of the deal. Don't just skim them; understand every detail.
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