Seller’s Remorse: Can You Get Your Company Back?

Starting, building, and then selling a business is the modern version of the American Dream. Many times, however, a business owner does not sell 100% of his stake in the company. Some transactions feature an arrangement where the new owner takes control of a majority stake in exchange for a lump sum payment, while the original owner retains a minority interest and continues to receive payments in some form. The seller will often remain with the company for a set period in some capacity, perhaps through a consulting agreement or other employment relationship.

While many of these transactions run their course with two satisfied parties, there isn’t always a happy ending. Unfortunately, the buyer may not be able to profitably manage the business, and the buyer’s ability to make any required continuing payments may be affected. Perhaps the buyer exaggerated its financial health or made promises regarding management strategies that it cannot keep.

The sale of a business is an inherently complex transaction, and the possible remedies available to a seller will always depend on the precise terms of the relevant agreements or other transactional documents. Nonetheless, there are a few legal theories that will apply to almost all business sales.

Rescission – This is an “equitable” remedy that a court may impose if the court finds that one or more grounds to rescind (or void) a contract exist. Grounds for rescission may vary by state, but the most common reason occurs when one of the parties has made misrepresentations about a material term of the contract. In such a case, the seller can argue that the buyer fraudulently induced the buyer into signing the sale documents. For example, the buyer of the business may have made inaccurate statements about the buyer’s financial condition, placing serious doubt on its ability to fulfill any continuing obligations to the seller. Rather than waiting for a seemingly inevitable bad result, a seller may be able to sue for rescission of the agreement(s) involved, and regain control of his business.

Anticipatory repudiation or anticipatory breach – If the buyer of the business has continuing obligations to the seller, and he makes an unequivocal statement that he will not be able to meet such an obligation, then the buyer has anticipatorily repudiated or breached the agreement. It is important to note that the statement cannot be merely doubtful or indefinite. The party must clearly state, through words or actions, that he will not perform according to the agreement. For example, if the buyer has stated that he will not make a payment by the specified date, then the seller does not have to wait for the deadline to pass. The seller can seek to have the contract rescinded immediately.

Breach of contract – A buyer may have simply violated one or more of the various, complex agreements comprising the transaction. While the buyer might have had a transactional attorney draft or review the sale documents, having business trial attorneys examine the operative agreements provides a fresh set of eyes to identify any issues that may have been overlooked. Trial attorneys may be able to craft an offensive strategy that will allow a seller to leverage his way into a more satisfactory situation.

Legal theories and procedures can vary depending upon the state or jurisdiction involved. A business seller should always consult with an experienced business trial attorney in his area to determine his options.

Gaddy Geiger & Brown is a trial firm offering a unique blend of energy, strategy and courtroom experience. To contact to a Kansas City business dispute lawyer,  Kansas City business litigation,  Kansas City employment litigation, Kansas City securities attorney, visit http://www.ggbtrial.com.