Why are Disclosure Schedules Important for Sellers?

When selling your company, you may hear a lot of unfamiliar jargon or technical terms, especially as the transaction progresses. Disclosure schedules may be one such example. You may have heard a similar term in the context of real estate, perhaps when selling or buying a house: seller disclosures. When selling your business, disclosure schedules play a similar role; they allow the seller to disclose basic facts or known liabilities about their business prior to the sale.

In practice, this means that if there is a breach to a representation or warranty after closing, but it was disclosed in the schedules, the buyer cannot make a claim. That’s why this document is important for you to understand and have a hand in drafting – disclosure schedules serve as protection for sellers post-closing.

Typically formatted as a Word document, disclosure schedules generally follow the outline of the purchase agreement and will include things like revenue by customer, purchases by supplier, and insurance information. Specifically, disclosure schedules act as a supplement to the representations and warranties section of the purchase agreement. The schedules are one of the last pieces of legal documentation created, usually only once the purchase agreement is close to final form and closing day is approaching. However, having these on your radar early and discussing with your advisors (in particular, an attorney with M&A experience) can help you ensure nothing is missed.

While who drafts the document can vary depending on the type of sale and the preferences of the parties involved, at our firm we typically draft these based on everything we’ve learned about the business during diligence. Sometimes a seller’s investment banker may lead this process.

Regardless of who drafts, it is important for sellers to review closely and provide additions or edits as needed to ensure the disclosures are as thorough and accurate as possible. Disclosure schedules in some ways act as an additional insurance policy for sellers: generally if you disclosed it in the schedules, it’s harder for the buyer to make a claim for breach post-closing.