What are disclosure schedules in a business sale agreement?

A purchase agreement contains statements by the seller about the business. Disclosure schedules sit behind those statements and list the exceptions. BDC says the representations and warranties section is where the vendor formally describes the condition of the business and makes disclosures about any issues of which it is aware. The schedules are where those disclosures are written down.

Why a seller needs them

BDC observes that it is hard for any company, in any industry, to give clean representations of the kind a buyer asks for. Its example is litigation. Instead of saying there is none, the seller says there is no litigation other than what is disclosed in a named schedule. That keeps the statement accurate and tells the buyer where to look.

What the schedule does for risk

BDC says the parties also negotiate who will assume various risks for the issues disclosed. A disclosed item is not automatically the buyer’s problem or the seller’s. BDC’s example is agreeing who pays damages if a lawsuit goes against the company or an existing environmental issue flares up after closing. Ask your lawyer how each scheduled item is treated, rather than assuming that disclosure ends the matter.

What happens if a schedule is wrong

BDC gives an example. If the vendor discloses two outstanding lawsuits and it turns out there are five, the indemnity section decides what compensation the vendor pays the buyer. That is why a seller should treat the schedules as a record to build carefully, not a form to fill in at the last stage of the deal. It is also why BDC’s advice to a seller includes using a lawyer familiar with business transitions to supply information to buyers during due diligence.

Preparing them as a seller

BDC says buyers will ask to look at historic and interim financial statements, projections and tax returns, and that significant price adjustments typically occur during due diligence. Gathering your contracts, disputes and licences early gives the lawyer the material for accurate schedules. Compare the schedules against the data room, and ask what the lawyer wants confirmed in writing. The cap on what you can owe is covered in how a liability cap works.