Easing the Transition with a Post-Closing Consultation Agreement
Post-Closing Consultation Agreement: Easing the Transition
Previously, we have discussed several key closing documents necessary for any purchase or sale of a business. In this article, we will discuss the document known as the Post-Closing Consultation Agreement.
Post-Closing Consultation Agreement
A post-closing consultation agreement is somewhat standard in most sales of businesses. At its core, it is an agreement that requires the selling business owner to stay on and work for the business after closing in a ‘consultation’ capacity for a short period of time. The purpose of the consultation is to ease the transition of the business from the selling owner to the new buyer. Understandably, the buyer must be shown how to operate the business, what vendors the business use, what softwares are used, and how the general operation and management of the business occurs. The agreement may even include a requirement for personal introduction to the customers of the business by the seller to the purchaser.
A post-closing consultation agreement is usually for a short period of time; anywhere from 2 weeks to 6 months depending on the nature of the business and the agreement between the parties.
In some cases, remuneration is provided to the seller for his or her time acting in the consultation capacity and working for the business. Other times, there is no additional payment to the seller as this was worked into the purchase price of the business.
In some agreements, a specified number of hours is agreed upon. Usually, 10 to 20 hours per week. While in other agreements, the purchaser wishes to consult with the vendor as needed, and doesn’t want the vendor lurking around the newly purchased business. In this case, the purchaser will phone the vendor for enquiries where needed, but does not require a particular amount of hours in which the vendor is present and working for the business on a weekly basis.
A Post-Closing Consultation Agreement is another important document found in the purchase and sale of a business. It is usually heavily negotiated, as the vendor wishes to commit to as little time as possible after the business is sold, whereas the purchaser wishes for the vendor to commit to as much time as possible. The terms of the post-closing consultation agreement are usually spelled out in the initial purchase agreement which is signed many days or months before closing. In this way, the obligations of the selling party will be clear and there will be no surprises or disputes as to the transition of the business on Closing.
-Shira Kalfa, BA, JD, Partner and Founder
Shira Kalfa is the founding partner of Kalfa Law. Shira’s practice is focused in corporate-commercial and tax law including corporate reorganizations, corporate restructuring, mergers and acquisitions, commercial financing, secured lending and transactional law. Shira graduated from York University achieving the highest academic accolade of Summa Cum Laude in 2012. She graduated from Western Law in 2015, with a specialization in business law. Shira is licensed to practice by the Law Society of Ontario. She is also a member of the Ontario Bar Association, the Canadian Tax Foundation, Women’s Law Association of Ontario, and the Toronto Jewish Law Society.
© Kalfa Law, 2020
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.