Business Acquisitions: Key Terms and Conditions (and Tips) to Protect Buyers

Minn. Stat. § 302A.601 allows for mergers and acquisitions. While some Minnesota statutes govern a purchasing business organization’s potential liabilities in certain circumstances, the parties to a business acquisition are generally free to negotiate the terms of their agreement, including provisions that will protect the buyer. These provisions include representations and warranties (R&Ws); closing conditions; “no-shop” provisions; fees; and the assumption of liabilities.



  • Minn. Stat. § 302A.661(4) provides that a buyer “is liable for the debts, obligations, and liabilities of the [seller] only to the extent provided in the contract or agreement or to the extent provided by [the chapter on Business Corporations] or other statutes of this state.”
  • One such statute that provides otherwise is Minn. Stat. § 270C.57, which makes a buyer of more than 50% of the value of another corporation’s property potentially liable for the transferor corporation’s “unpaid sales and withholding taxes, interest, and penalties due from the transferring business.” The buyer can avoid liability by providing notice to the tax commissioner of the transfer and its terms at least 20 days before closing the deal.

Legal Concepts – Contractual Provisions

  • R&Ws – The purchase agreement may specify the R&Ws that the seller makes to the buyer, such as the seller’s title to the asset being sold; the exact nature/scope of the asset; the seller’s ability to do the transaction; the seller’s liabilities; the seller’s ability to obtain financing; the seller’s compliance with state and federal law; and so on. These R&Ws protect the buyer because if the seller signs the agreement with false R&Ws, the buyer may bring a fraud claim against the seller.
  • Closing Conditions – In transactions in which the date of closing follows the date of signing, the parties may negotiate the conditions precedent to closing. The buyer may require delivery of documents including title to the property; renewed certification of R&Ws; regulatory approval (if needed); approved financing, and so on. These conditions protect the buyer because the buyer may walk should the closing conditions be unmet.
  • “No-Shop” – Another way to protect the buyer is by limiting the seller’s interactions with other potential buyers. The agreement can limit the seller’s ability to seek other officers, limit the seller’s use of confidential information obtained during negotiations and due diligence, and structure the methods by which the seller interacts and negotiates with other potential buyers. This type of provision protects the buyer by providing better certainty as to whether the deal is likely to go through and making the buyer aware should the seller start negotiating with other parties.
  • Fees – The buyer can negotiate fees that it will receive should certain events occur or fail to occur. The parties may set up a system whereby the buyer is compensated if the deal falls through, the seller decides to sell to someone else, the parties fail to obtain the requisite regulatory clearance, and so on. When these fees are in the buyer’s favor the buyer will receive some financial compensation should the triggering events occur or fail to occur.
  • Assumption of Liabilities -Under Minnesota statute, a buyer does not become liable for the debts and obligations of the transfer or unless it agrees to do so contractually or if other law applies. A buyer may therefore “carefully define the liabilities it [will] assume” while excluding others.

Elements of Fraud and Negligent Misrepresentation Claims

Should the R&Ws turn out to be false, the buyer has potential claims against the seller. To win on a fraud claim, the buyer would have to show:

1) a R&W “of a past or existing material fact” that can be known;

2) that the seller agreed to the R&W knowing that it was false or “without knowing whether it was true or false”;

3) the seller did so intending to induce the buyer into the agreement;

4) the buyer relied on the representation, and

5) damages from reliance. The misrepresentation must also be material.

The buyer could also bring a negligent misrepresentation claim. The main difference between this and fraud is that negligent misrepresentation does not require a showing of the seller’s intent but does require the buyer to establish the seller’s duty of providing a true statement.

Potential Consequences

In deals covered by Minn. Stat. § 270C.57, described above, failure to provide the commissioner with the required notice makes the buyer liable for the tax liabilities of the seller.

Practical Example

On Day 1, A and B sign an agreement that A sell B B’s business. The agreement contains an R&W that B’s company does not face any material lawsuit, that closing will occur on Day X, and the closing condition that the R&Ws be true at the date of closing. After signing, a multimillion-dollar toxic tort lawsuit is filed against B’s business. On Day X, A is not obligated to close because the R&W about material lawsuits is no longer true.

Other Information

Minn. Stat. § 302A.661(4) also states: “[a] disposition of all or substantially all of a corporation’s property and assets under this section is not considered to be a merger or de facto merger pursuant to this chapter or otherwise.” The Minnesota Court of Appeals, in an unpublished decision, nevertheless applied the de facto merger test in its analysis of a successor liability claim with no explanation of why it did so despite this language.