When it comes to mergers and acquisitions (M&A), the excitement of signing a purchase agreement can sometimes overshadow the critical details buried in the exhibits. One of the most important, but often overlooked, parts of these agreements is the disclosure schedule. Disclosure schedules play a central role in protecting both buyers and sellers during a deal.
What Are Disclosure Schedules?
In every purchase agreement relating to the sale of a business, the seller makes a series of representations and warranties, which essentially are promises about the condition of the business. These promises may cover issues such as:
- Financial statements
- Compliance with laws
- Absence of litigation
- Proper ownership of assets
However, no business is perfect. Disclosure schedules allow sellers to list exceptions to the promises made in the purchase agreement and disclose other critical elements of the business.
How Disclosure Schedules Work
Disclosure schedules bring visibility to matters a buyer needs to be aware of before closing. For example:
- If the agreement states, “except for as provided in the Disclosure Schedules, the company has no pending litigation,” but a lawsuit is ongoing, that lawsuit must be listed in the disclosure schedule.
- If certain intellectual property is licensed rather than owned, this detail should also appear in the disclosure schedule.
By identifying these exceptions, sellers protect themselves from accusations of misrepresentation, while buyers gain a clearer picture of the risks they are assuming.
Why They Matter for Buyers and Sellers
For buyers: Disclosure schedules provide transparency. They ensure the buyer knows exactly what they are purchasing and can adjust the valuation, negotiate protections, or even walk away if the risks are too high.
For sellers: Disclosure schedules serve as a shield. By disclosing exceptions, sellers avoid potential post-closing disputes and claims that they failed to disclose material information.
In short, disclosure schedules balance risk between the parties and form one of the strongest protections in any M&A deal.
Key Takeaway
Disclosure schedules may not be in the main body of the purchase agreement, but they are vital to the integrity of any merger or acquisition. They turn general commitments into practical disclosures, protecting both buyers and sellers from avoidable disputes.
M&A transactions are complex, and the fine print and exhibits can make or break a deal. Properly drafted disclosure schedules protect both sides, ensuring transparency, shifting risk appropriately, and reducing the chance of costly disputes down the road.
If you’re considering buying or selling a business, working with experienced M&A attorneys is essential to navigate disclosure schedules and other critical elements of the deal.
Contact Kamden Crawford at kcrawford@psbplaw.com to protect your acquisition or sale and close your deal with confidence.