I Just Discovered Problems With The Business I Bought. Is It Too Late To Do Anything?
No, it’s not necessarily too late. Most purchase agreements include protections for buyers who discover problems after closing. Your options depend on what your purchase agreement says and how quickly you act. The key is understanding your rights under the indemnification provisions and moving fast.
What Should I Look For In My Purchase Agreement?
Start with the representations and warranties section. These are the promises the seller made about the business. Common representations cover financial statements, customer contracts, employee matters, litigation, tax compliance, and material contracts.
Then find the indemnification provision. This section explains what happens if the seller’s representations turn out to be false. Most agreements include:
- Survival periods that determine how long you can bring claims
- Baskets that set minimum loss thresholds before claims are paid
- Caps that limit the seller’s total liability
- Carve-outs for certain types of claims, like fraud or taxes
Check whether your deal included an escrow. Many transactions hold back a portion of the purchase price for 12 to 24 months specifically to cover indemnification claims.
How Quickly Do I Need To Act?
Immediately. Survival periods in purchase agreements are firm deadlines. If your agreement says representations survive for 18 months, you must bring claims before that deadline expires. Don’t wait to see if the problem resolves itself.
Start documenting the problem as soon as you discover it. Gather evidence that shows the issue existed before closing and that it contradicts the seller’s representations.
What Kind Of Documentation Do I Need?
You need evidence proving the issue existed before closing and contradicts specific seller representations. This might include emails, financial records, customer communications, or third-party reports. Keep everything organized and timestamped. You’ll also need to prove actual losses. Quantifiable damages might include revenue losses from customer departures, costs to resolve undisclosed litigation, penalties or back taxes from compliance failures, or expenses to fix undisclosed operational problems.
Do I Have To Notify The Seller?
Yes. Most purchase agreements require written notice of indemnification claims within specific timeframes. Send a detailed letter that identifies the breach, explains how it violates specific representations in the agreement, and quantifies your damages if possible. Keep your notice factual and professional. Reference specific sections of the purchase agreement. Include supporting documentation. Send it via methods that provide proof of delivery.
What If The Seller Won’t Pay My Claim?
If the seller disputes your claim or refuses to pay, you have options. You can pursue the escrow funds if they exist. You can negotiate a settlement. Or you can file a lawsuit for breach of contract. Sometimes you have claims beyond the purchase agreement. If the seller committed fraud, those claims in Illinois don’t face the same contractual limitations as breach of contract claims. They often allow for punitive damages and attorneys’ fees.
Can I Undo The Entire Purchase?
Maybe, but it’s rare. If the problem threatens the business’s survival, you might have claims for rescission. This remedy unwinds the entire transaction. It’s difficult to obtain, but it’s available in cases of fundamental misrepresentation.
Should I Hire A Lawyer For This?
Yes. Post-closing disputes get complicated quickly. Sellers often dispute whether problems existed before closing or whether they’re covered by representations. They’ll point to survival periods, baskets, and caps to minimize their exposure.
A Chicago business purchase lawyer can review your purchase agreement, assess the strength of your claims, and develop a strategy for recovery. At Kravets Law Group, we help buyers address post-closing disputes by analyzing purchase agreements, preparing indemnification claims, negotiating with sellers, and litigating when necessary. If you’re dealing with unexpected problems, working with a Chicago business purchase lawyer protects your investment and gives you the best chance of recovery.