When two parties agree to a stock purchase agreement, it is usually done with the intention of transferring ownership of company shares from one party to another. However, in many cases, the seller may be reluctant to take on the full responsibility of any liabilities associated with the company being sold. This is where the concept of “excluded liabilities” comes in.
An excluded liability is any debt, legal obligation, or claim against a business that is specifically excluded from the terms of a stock purchase agreement. This means that the buyer assumes responsibility for any excluded liabilities associated with the acquired company. The seller, on the other hand, is protected from any future litigation or claims arising from the excluded liabilities.
There are several types of excluded liabilities that are commonly included in stock purchase agreements. These can include tax liabilities, employment disputes, environmental issues, contract disputes, and other legal issues. It is crucial for both parties to identify and list all possible excluded liabilities before signing the agreement.
From the buyer’s perspective, it is important to conduct thorough due diligence before acquiring a company, especially when excluded liabilities are involved. Due diligence involves conducting a comprehensive investigation of the financial and operational aspects of the company to identify any potential risks or liabilities that may affect the business. This can involve reviewing financial statements, contracts, legal agreements, and other relevant documents.
From the seller’s perspective, it is equally important to accurately represent the excluded liabilities associated with the business being sold. Any material misrepresentation can lead to legal consequences down the line.
Excluded liabilities can be a complex and highly technical aspect of stock purchase agreements. It is important to have an experienced attorney and accountant involved in the negotiation and drafting of these agreements to ensure that both parties are protected.
In summary, excluded liabilities are an essential part of stock purchase agreements. They protect both buyers and sellers from potential risks and liabilities associated with the business being sold. It is crucial for both parties to identify and list all possible excluded liabilities before signing the agreement and to conduct thorough due diligence to mitigate any potential risks.