What issues are involved when a portion of the purchase price is paid at closing and the balance paid later?
New Jersey business transactions attorney, Harold I. Steinbach, explains how creating a new mini deal creates issues for buyers and sellers.
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Obviously, this is a bigger concern to the buyer but it will generally involve a promissory note and is that negotiable or nonnegotiable? Is it guaranteed and guaranteed by who? Is it secure? The buyer, to me, is entitled then to have as security all of the assets it sold. But that might not be enough for the buyer. They buyer is not looking to take back the business. She might be a 90-year old person who’s retiring to Florida; she’s not interested in coming back so we might need additional collateral. If I’m the buyer, I might ask for a mortgage on somebody’s house. And then there’s a security agreement and you have to file financing statements and it becomes a whole other mini deal to the buyer because if you didn’t get paid what you’re supposed to you’re not entitled to anything. You may also need to put on restrictions on what the business can do till it pays you off, because if you sold them a pet store you don’t now want them building nuclear missiles. So those are some of the issues.