Thirteen Practical Tips for “Closing” the Deal
By Cara Bradley
“Closing” a transaction is one of the most important duties performed by a junior business attorney. A transaction is considered closed when all requisite documents have been negotiated, signed and delivered, any instruments or certificates have been exchanged, authorizations and consents are final and effective, and any funds have exchanged hands. The following checklist contains practical tips to help ensure your next closing will proceed in a smooth and orderly fashion.
1. Understand the Substance of the Transaction
Before you can prepare for a closing, learn about the operative documents involved in the transaction. You must understand the intent of the parties entering into the transaction and the relationships between the parties prior to and after the closing. Is ownership of an entity changing? Are securities being issued? Will new entities be created or any existing entities dissolved?
2. Understand the Mechanics of the Transaction
Decide what steps are necessary for the closing. Do one or more of the operative documents include schedules and exhibits that need to be prepared, and if so, who is the party responsible for their preparation? Do stock certificates need to be printed? Are there any certificates or UCC forms that need to be filed with federal, state or local authorities, and if so, where must those filings be made? Are Board of Directors votes, shareholder votes or other authorizations or consents required? Does either party need to provide audited financial statements or comfort letters, and if so, who is the person responsible for coordinating with the auditors? Which legal opinions need to be provided? Where and when should money be wired?
3. Determine If Any Regulatory Filings or Clearances Are Needed
Regulatory filings, including any Hart-Scott-Rodino clearance for merger and acquisition deals, often involve a substantial amount of lead time to prepare the filing and to wait for governmental approval. Identify any regulatory filings or clearances that will be required early in the negotiations so that your closing is not held up.
4. Prepare a Detailed Closing List and Agenda
Your closing list should lay out the timing and responsibility of each party to close the transaction. Carefully review each of the operative documents to create a list of closing items. Keep in mind that closing deliverables may appear throughout the document, not just in the closing conditions section. Confer with the attorneys on the other side and the client to determine if any special closing items need to be built into the list and to confirm that parties tasked with specific items are aware of their responsibilities. Modify and update your list as the negotiations continue. Build in lead time to get your documents signed in advance of the closing.
5. Lay Out Any Items Required for Closing that Require Lead Time
Stay aware of any required notice periods to hold a Board of Directors or a stockholder meeting. Figure out whether your entities are currently in good standing, and if not, determine what needs to be done to bring them into good standing. Estimate how much time is needed to order and receive certificates from the Secretary of State. Coordinate with your client and their auditors if an audit opinion or a comfort letter needs to be delivered at closing.
6. Establish the Basic Logistics for the Closing
Determine a projected date and time for the closing. Decide whether the closing will be “live” or
completed by telephone or fax. Establish if there are deadlines for fund transfers. Establish if a “preclosing” is needed to prepare for the closing and if so, ensure that you have enough time to have all documents signed in advance.
7. Keep in Mind Which Parties Need to Be Involved in the Closing
Know which parties need to approve any last-minute changes to documents. Confirm that everyone can be reached by telephone, fax or courier on the date of the closing or make alternative arrangements. Be aware of travel schedules. Keep in mind that a signatory’s assistant or secretary can be your best source for accurately and timely signed documents. Make sure to accommodate any difference in time zones.
8. Collect Signature Pages from Your Client
Talk to the other parties about the number of original signatures that will be required from each
signatory. Collect your signature pages early. Do not date the signature pages until you have confirmed when the closing will occur. If you send signature pages to another party prior to the closing, make sure you stipulate that the pages are held in escrow pending your release at closing.
9. Prepare the Items That Your Law Firm Must Present at the Closing
Draft and review any legal opinions that your law firm will present at the closing. Make sure that the appropriate partners at your law firm have reviewed the opinion before it is signed. If your client or any other parties will pay legal fees in connection with the closing, make sure the legal bill is prepared and includes accurate time entries up to the date of the closing.
10. Stay Organized
As closing items are completed, keep careful track of them. Establish a system for collecting and
organizing final documents as completed, especially signature pages. Follow‐up with your team to assess progress on closing items and identify any potential problems early in the process. Update closing checklists regularly to reflect the status of the deal. Keep your team and the attorneys on the other side apprised of the status of items and who is responsible for which tasks.
11. Solve Problems As They Arise
If a problem arises, you must first identify it and understand how it affects the overall transaction. There are no strict rules about what will hold up a closing and what will not. Some items can be delivered “postclosing” so long as the parties agree and there is little or no risk to enforceability of the transaction. If you are faced with a problem, consult with other attorneys on your team and if
appropriate, your client. Problems at closing can generally be divided into three categories:
- Administrative Problems require some nonsubstantive changes to the closing items or timing of delivery. Examples include accepting a faxed copy of a signature instead of an original copy, fixing numbering or a spelling errors postclosing, or holding onto signed and delivered documents until money is wired. These types of matters can generally be worked out between the parties and do not typically need to hold up a closing.
- Substantive Problems affect the validity or enforceability of the transaction. Examples include incomplete disclosure schedules, improper or incomplete corporate authorization, or the rejection of a certificate by the Secretary of State because of drafting errors. These items will usually delay a closing until the problem can be resolved. To avoid certain substantive problems, consider preclearing important and time sensitive documents with applicable state authorities.
- “Show Stoppers” will prevent the transaction from going forward as intended, even with modifications, concessions or waivers. Examples include the discovery of encumbered title to assets, improperly issued securities or the refusal of one or more parties to move forward. In this case, the closing cannot happen until the parties resolve the remaining open issues.
12. After the Closing Date, Prepare Closing Files as Soon as Possible
After the closing has occurred, collect any remaining postclosing items while the transaction is still fresh in your mind. Promptly prepare any blue sky filings or shareholder notices. Prepare and distribute closing binders to the appropriate parties and prepare your closing files with final copies of documents and all important correspondence.
13. When in Doubt, Always Ask for Help
Other attorneys on your team or more senior lawyers at your law firm are more than willing to help you understand how a closing should proceed and are available to answer your questions. In addition, often paralegals at your firm will have been through literally hundreds of closings and will be able to answer many questions about the more administrative aspects of a closing.
Ms. Bradley is a business lawyer in Boston. She is a member of the American Bar Association Young Lawyers Division and Business Law Section. She can be reached at firstname.lastname@example.org.
The above checklist is a reprint from “Thirteen Practical Tips for ‘Closing’” by Cara Bradley, published by ABA Business Law Section, Young Lawyer Committee Newsletter, March 2011 Edition. Copyright 2011© by the American Bar Association. Reprinted with permission. All rights reserved. This information or any or portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
© Copyright 2011, American Bar Association.