The Devil Is In The Details: Ancillary Agreements to a Purchase Agreement
It is no secret that a lot of effort goes into a business acquisition. In fact, some lawyers devote their entire practice to this area of business law.
This is because buying and selling a business has many moving parts and the documents required for such a transaction can differ greatly depending on specific circumstances of the deal. As discussed in more detail here, there are different types of purchase agreements; therefore, it goes without saying that there may be several types of ancillary agreements needed alongside your purchase agreement to ensure that all of the terms of the deal have been accounted for.
An ancillary agreement simply means any contract that is included in addition to the initial purchase agreement whose terms also relate to the original purchase agreement. Some of the most common ancillary agreements include restrictive covenants, confidentiality/nondisclosure agreements, and employment/consulting agreements.
Restrictive covenants are just what they sound like: provisions agreed upon by the buyer and seller that impose some type of restriction on an aspect of the transaction. These covenants are versatile and can present themselves in many different forms. For example, restrictive covenants can be tied to the sale of the business itself, or business assets, where the details would be laid out in the asset purchase agreement. Or the restrictive covenant could be imposed on the seller or transitioned employees. Two common examples of this are non-compete or non-solicitation clauses, which are often required by a buyer so to restrict the seller from competing with, or soliciting business from, the buyer for a period of time after the closing.
Confidentiality agreements and nondisclosure agreements, which are often referred to as “NDA’s,” are agreements that are imposed to protect the business’s confidential information and trade secrets from exposure to the public. For maximum protection, it is best practice to include mirroring language from the ancillary agreement in the purchase agreement as well so that the restricted individual cannot claim that they were unaware of the agreement or its restrictions.
An employment agreement is an ancillary document that is often comprised of more than one type of ancillary agreement. For instance, most employment agreements will contain restrictive covenants as well as nondisclosure clauses. In addition to these, an employment agreement will also likely include language describing the details of the position, including: job duties, time commitments, the term of employment, and termination rights.
As stated above, the devil is in the details when it comes to a purchase agreement, and it can be very difficult to successfully raise an issue with some aspect of the transaction once the closing has taken place. It is important to speak with counsel that has experience with these types of contracts to make sure that your intentions for the deal have been fulfilled prior to closing.
DYE CULIK PC is a North Carolina law firm, our attorneys represent businesses and franchises in all areas of the business life cycle and work with companies to make sure the details are correct and applicable in all employee agreements, noncompete agreements, and nondisclosure agreements. Contact us or reach out to us by phone at 980-999-3557 if you would like to set up a consultation for your business.