The post-closing process can be complex and time consuming.
Hiring a professional independent shareholder representative to
manage post-closing matters, such as purchase price adjustments,
indemnification claims, earn-outs and escrow management, may be
beneficial for target shareholders and management. In recent years,
shareholder representatives have been commonly used in the U.S.,
and they are becoming increasingly common in Canada.
There are many benefits to hiring a shareholder representative
to deal with post-closing matters:
Avoid conflicts of
interest. When the purchaser decides to continue to employ
target executives and management post-transaction, there is an
inherent conflict of interest for the target executives and
management to represent the interest of target shareholders. For
example, if a potential claim arises with regard to a breach of
representation or warranty by the purchaser post-closing, the
target executives may not feel comfortable bringing a claim against
the purchaser, who is now their new employer.
post-closing matters are highly complex, and the existing target
executives and management may not have the skill and knowledge to
carry them out. For instance, according to a survey done by SRS Acquiom, 73% of private
M&A transactions have a purchase price adjustment mechanism in
place. Purchase price adjustments are often difficult to calculate
without proficiency in tax and accounting, and having experts in
the field to manage the adjustment process will ensure price
adjustments are computed in an accurate and timely manner.
Available on a long-term
basis. Earn-out provisions are becoming increasingly
popular in private M&A transactions (a more detailed discussion
can be found
here), and their terms range anywhere from one year to more
than four years post-closing. Shareholder representatives, instead
of target executives, can fill the role of monitoring earn-outs on
behalf of target shareholders, especially if the earn-out period is
communication. Shareholder representatives can provide
updates to shareholders and answer any shareholder inquiries to
improve shareholder communication post-transaction.
Target management should consider hiring shareholder
representatives for share purchase transactions when their company
is a widely held corporation. Shareholder representatives may
assist target executives to focus their attention on their core
business and to avoid conflicts of interest with shareholders.
The author would like to thank Lucy Liu, articling student,
for her assistance in preparing this legal update.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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